Exports Proceeds Hit Year High in October

• Exports reached year high in October at RM69.2b but proceeds declined by 8.6%yoy due to high base. With the median economists projection for the month stood was 5.3%yoy contraction, the export’s performance came in clearly below the market expectation. The figure was mildly better than our expectation, based on our forecast for a 9.7%%yoy decline. Imports stood at RM59.4b, down by 6.6%yoy and 1.7% on month-on month basis.

• Double digit growth of E&E exports to China continues. E&E exports to China jumped during the month by 26.7%yoy – notching double-digit growth for the second consecutive months. This came on the back on a solid demand for locally produced transistors and valve related semi-conductor components where exports proceeds grew the highest in this year at 48.1%yoy.

• While the high-base factor works against the trade performance for this Aug-Nov period, the reverse will provide the tailwinds for growth in 2017. We anticipate exports to grow by 3.5% in 2017.

Exports reached year high in October at RM69.2b but proceeds declined by 8.6%yoy due to high base. With the median economists projection for the month stood was 5.3%yoy contraction, the export’s performance came in clearly below the market expectation. The figure was mildly better than our expectation, based on our forecast for a 9.7%%yoy decline. Imports stood at RM59.4b, down by 6.6%yoy and 1.7% on month-on-month basis. As a result, trade balance widened to RM9.8b – the second highest after March figure of RM11.2b. For the first 10 months, exports contracted by 0.6%yoy while imports declined marginally by 0.1%yoy.

Broad base decline in imported goods reflects still drained domestic demand and production. All three categories of imported goods contracted during the month. Intermediate imports slid steeply by 8.9% after notching two consecutive months of growths. Similarly, consumption goods declined by 8.0%yoy while capital goods edged slightly lower by 2.0%yoy. However, the weaker imports provided a good avenue for higher trade balance – a good tailwind for higher economic output in the short-term.

Double digit growth of E&E exports to China continues. E&E exports to China jumped during the month by 26.7%yoy – notching double-digit growth for the second consecutive months. This on the back on a solid demand for locally produced transistors and valve related semi-conductor components where exports proceeds grew the highest in this year by 48.1%yoy. As expected, Hong Kong was on China’s heels, also marking double-digit growth at 15.5%yoy. In contrast, demand from the US for E&E exports fluttered, falling for the first time this year at 2.7%yoy and there was no growth momentum either judging from the month-on-month change. We opine that this month’s performance was rather mixed hence we put on hold our optimism for this sector.

LNG, crude petroleum exports dwindled again. LNG exports suffered the second steepest fall in the year during October, plunging by 40.2%yoy. Coal prices edged lower by 4.9% while LNG prices on the international market climbed by almost 20%. The widening spread between coal and LNG prices give rise to incentivise the substitution of the latter for the former as electricity providers took advantage to source more coal as part of their generation mix to keep their cost competitive. Japan which consumed more than 60% of our local LNG production is seeing a weaker demand, partly to the aforementioned reason and declining demographics. We remain downbeat on the exports prospects for the sector.

While the high-base factor works against the trade performance for this Aug-Nov period, the reverse will provide the tailwinds for growth in 2017. The second half of this year has seen both exports and imports contracted 3 times in 4 months. In same period, total trade activity on average also declined 2.9%yoy as exports shed -3.9%yoy and 1.6%yoy respectively. We forecast exports to mark negative growths in the next two months, mainly on the same two factors i.e high base and sluggish world trade activities. While this is not exactly a sanguine view in the short-term, we feel a low base effect will lend support to external trade to mark a positive growth of 3.5% in 2017.

Source: MIDF Research - 7 Dec 2016