Data Highlight

• Malaysia's total trade in May 2024 rose by 10.3% YoY, reaching RM246.31bn. This growth compares to a 12.1% YoY increase in the previous month and an 11.3% increase from April 2024's RM221.65bn.

• Meanwhile, Malaysia's trade surplus for the month widened to RM10.14bn. This figure represents an increase of 30.9% from the previous month’s surplus of RM7.74bn. However, on a YoY basis, trade surplus contraction eased to 35.4% from RM15.7bn in May last year, as compared with 38.7% YoY drop previously.

• Breakdown showed total exports rose significantly during the month. The absolute value of Malaysia's exports amounted to RM128.22bn, reflecting a significant increase of 7.2% (or an addition of RM8.7bn) from the May 2023’s RM119.51bn. Consensus were looking for a growth of 2.3% YoY. Particularly, Malaysia's domestic exports witnessed steady increase of 13.2% YoY to RM105.99bn (15.6% MoM), while re-exports dropped by 14.1% YoY to RM22.23bn (-3.3% MoM). On a MoM basis, total export rose by 11.8% from April’s RM114.69bn.
   
  • Among the top ten destination countries, performance varied, with 8 countries experiencing a growth on a YoY basis.
     
  • Singapore, China and the US sustained as the primary contributor to Malaysia's exports during the month. Together, the three countries accounted for a substantial 42.2% of Malaysia's total exports, solidifying their positions as key destination countries for Malaysian exports. Interestingly, China has step down to become number three top contribution during the month, behind the US.
     
  • Singapore dominated the main destination country with a contribution of 17.4% to total exports. Exports to Singapore was valued at RM22.3bn, rose by 13.7% YoY. The increase was attributable from higher exports of electrical & electronic (E&E) products (17.7% YoY) and machinery, equipment & parts (20.1% YoY).
     
  • Exports to the US, which constituted 12.6% worth RM16.1bn in May, increased by 17.4% YoY. The increase was supported by higher exports of E&E products (14.4% YoY) and other manufactures (84.7% YoY).
     
  • Meanwhile, exports to China grew for two straight months, increased by 1.6% to RM15.73bn supported by higher demand for paper and pulp products, petroleum products as well as palm oil and palm oil-based agriculture products.
     
  • Exports to EU grew by 7.2% to RM9.81bn, attributed to increased exports of palm oil and palm oil-based products, optical and scientific equipment as well as chemicals and chemical products. Netherlands, Germany and Italy were among the top 3 of major exports destinations during the month.
     
  • Exports to Japan rebounded by 2.4% to RM7.34bn after two consecutive months of contraction due to growing exports of optical and scientific equipment, processed food and petroleum products.
     
  • Looking at specific sectors, exports of manufactured goods remained significant to the total exports in May 2024 with a contribution of 86.2%, recorded an increase of 8.3% YoY to RM110.6bn. The main contributors to the growth were E&E products (7.6% YoY), other manufactures (40.7% YoY) and manufacture of metal (27.6% YoY). Exports of agriculture goods (7.1% to total exports) recorded a growth of 22.1% to RM9.1bn. The increase was in line with the higher exports of palm oil & palm oil-based agricultural products, rose by 25.7%. Meanwhile, mining products (6.0% of total exports) decreased 17.2% YoY to RM7.7bn. The decrease was in line with lower exports of liquefied natural gas (-21.2% YoY) and condensates & other petroleum oil (-95.0% YoY).
     
• A better performance was observed in Malaysia's total imports, with a significant increase of 13.8% YoY to RM118.09bn, but lower than April’s 15.5% YoY (consensus estimates: 8.4% YoY). On a monthly basis, total imports grew by 10.4% from RM106.95bn in the previous month.
   
  • China remained as Malaysia's top source of imports, recording total imports of RM26.21bn, which accounted for a 22.2% share of Malaysia's imports. Imports from China rose by 22% YoY. This growth was boosted by an increase in E&E products (33.1% YoY), followed by machinery, equipment & parts (23.6% YoY) and transport equipment (47.5% YoY).
     
  • Imports from Singapore was worth RM14.5bn, accounting for 12.3% of Malaysia's imports, an increase of 6.5% YoY. The increase was driven by E&E products (26.4% YoY), chemical & chemical products (10.1% YoY) and textiles, apparels & footwear (36.2% YoY).
     
  • Of the ten countries, imports from nine major countries of origin recorded high value changes as compared to the previous year except for Japan (-0.8% YoY), Indonesia (-0.1% YoY), and Thailand (-3.1% YoY), which recorded a decrease as compared to the previous year.
     
  • Imports of all segment, namely, manufacturing (12.3% YoY; RM97.89bn), agriculture (15.5% YoY; RM6.31bn) and mining (18.6% YoY; RM11.34bn) sectors, registered a growth during the month.
     
  • Imports by End Use recorded an increase for all three major categories. Imports of intermediate goods rose by 24.1% YoY, followed by an increase in capital goods of 40.5% YoY and consumption goods of 14.7% YoY. Our views

• Total exports in the first five month of this year grew by 4.5% YoY to RM605.25bn (4M24: 3.8% YoY). Concurrently, total imports have surged by 13.7% YoY to RM553.24bn, showing a continued momentum. This dynamic has resulted in a trade surplus of RM52.01bn. Moreover, the overall trade for the period has breached RM1tn threshold at RM1.158tn, indicating a promising annual increase of 8.7% compared to the 4M24's increase of 8.3% YoY.

• We noticed that demand from China has not been as encouraging as expected, pushing it to become the third-largest of Malaysia's export partners. The decline may be attributed to a reduced demand for local E&E products from China. Instead, the main drivers of export performance to China (year-to-date) have been paper and pulp products, petroleum products, and palm oil and palm oil-based agricultural products.

• Despite this current trend, we believe that an improvement in demand from China will occur in the future. We anticipate a rebound in demand as economic conditions evolve. In a recent development, the Malaysian Government has announced that it will soon begin formal procedures to join the intergovernmental organization BRICS (Brazil, Russia, India, China, and South Africa). Prime Minister Anwar Ibrahim stated that Malaysia is committed to the Global South, and its potential membership in BRICS would be of strategic importance, given the Straits of Malacca's crucial position as a shipping lane connecting the Pacific and Indian Oceans. BRICS countries contribute approximately 17% of Malaysia's total exports.

• On top of that, Ministry of Trade and Industry (MITI) said that three economic collaborations between Malaysia and China will significantly bolster supply chain resilience, fuel trade expansion in the services sector, and attract high-quality investments. The collaborations include a five-year programme for economic and trade cooperation between Malaysia and China, along with two additional memorandum of understanding on strengthening investment cooperation in the digital economy and green development.

• For this year, we anticipate an improvement in trade performance, buoyed by growing demand from international markets, the anticipated recovery of China's economy, and a promising outlook for the global semiconductor market. Malaysia has experienced a notable increase in the import of intermediate goods from December 2023 to May 2024. This trend suggests that the country's exports may rise in the near future. Intermediate goods are essential components used in manufacturing final products. The rise in these imports indicates that Malaysian manufacturers are ramping up production, preparing to meet higher demand for finished goods both domestically and internationally. Our current forecast projects a growth of 7.0% for exports and 10.6% for imports in 2024.

Source: TA Research - 21 Jun 2024