Data Highlight

• Malaysia's total trade in June 2024 rose by 8.7% YoY, reaching RM237.8bn. This growth compares to a 10.1% YoY increase in the previous month but decreased from May’s RM246.1bn by 3.4%.

• Meanwhile, trade surplus for the month widened to RM14.29bn, marking a 43.6% increase from the previous month's surplus of RM10.0bn. On a YoY basis, however, the trade surplus contracted by 50.8%, dropping from RM29.1bn in June of the previous year.

• Breakdown showed total exports rose moderately during the month. The absolute value of Malaysia's exports amounted to RM126.1bn, reflecting an increase of 1.7% from the June 2023’s RM123.9bn. Consensus were looking for a growth of 3.3% YoY. Particularly, Malaysia's domestic exports witnessed steady increase of 7.1% YoY to RM100.4bn (-5.1% MoM), while re-exports dropped by 15.1% YoY to RM25.6bn (15.2% MoM). On a MoM basis, total export declined by 1.6% from May’s RM128.0bn.
   
  • Among the top ten destination countries, performance varied, with only 4 countries experiencing a growth on a YoY basis. Singapore, China, and the US continued to be the primary contributors to Malaysia's exports during the month. Together, these three countries accounted for a substantial 41.5% of Malaysia's total exports, solidifying their positions as key destinations for Malaysian goods. Interestingly, China has risen to become the second-largest contributor again, surpassing the US.
     
  • Singapore led the main destination countries with a contribution of 16.2% to total exports. Exports to Singapore was valued at RM20.4bn, declined by 3.0% or RM642.1mn. The decrease was attributable from slower exports of electrical & electronic (E&E) products (-12.5% YoY) and crude petroleum (-83.5% YoY).
     
  • Meanwhile, the value of exports to China (13.0% of total exports), worth RM16.4bn, decreased by 2.0%. The decrease was due to the lower exports of E&E products (-7.4% YoY) and other manufactures (-19.2% YoY).
     
  • Exports to the US which constituted 12.3% worth RM15.6bn in June, increased by 14.0 % YoY. The expansion was contributed by robust demand for E&E products, machinery, equipment and parts as well as optical and scientific equipment.
     
  • Exports to EU dropped 8.2% to RM8.8bn, underpinned by lower exports of E&E products, manufactures of metal as well as optical and scientific equipment. Nevertheless, the contraction was cushioned by exports of palm oil and palm oil-based products, rubber products as well as processed food.
     
  • Looking at specific sectors, exports of manufactured goods remained significant to the total exports in June 2024 with a contribution of 87.1%, recorded an increase of 1.0% YoY to RM109.7bn. The main contributors to the growth were machinery, equipment and parts (25.1% YoY), other manufactures (20.1% YoY) and paper & pulp products (20.5% YoY). Exports of agriculture goods (6.1% to total exports) recorded a growth of 1.7% to RM7.6bn. The increase was in line with the higher exports of other vegetables oil, which rose by 38.9%. Meanwhile, mining products (6.3% of total exports) grew by 15.1% YoY to RM8.0bn. The decrease was in line with higher exports of liquefied natural gas (23.7% YoY) crude petroleum (15.4% YoY).

• A better performance was observed in Malaysia's total imports, with a significant increase of 17.8% YoY to RM111.8bn, and higher than May’s 13.8% YoY (consensus estimates: 15.5% YoY). On a monthly basis, total imports declined by 5.4% from RM118.1bn in the previous month.
   
  • China remained as Malaysia's top source of imports, recording total imports of RM24.7bn, which accounted for a 22.1% share of Malaysia's imports. Imports from China rose by 29.1% YoY. The rise in imports from China was driven by an increase in E&E products (52.0% YoY), followed by machinery, equipment & parts (19.7% YoY) and transport equipment (49.9% YoY).
     
  • Imports from Singapore was worth RM13.8bn, accounting for 12.4% of Malaysia's total imports, an increase of 17.4% YoY. The increase was driven by E&E products (21.7% YoY) and petroleum products (19.8% YoY).
     
  • Of the ten countries, imports from eight major countries of origin recorded high value changes as compared to the previous year except for Japan (-9.6% YoY) and Indonesia (- 9.1% YoY), which recorded a decrease as compared to the previous year.
     
  • Imports of all segment, namely, manufacturing (17.5% YoY; RM92.6bn), agriculture (13.2% YoY; RM5.8bn) and mining (9.8% YoY; RM10.9bn) 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 37.2% YoY, followed by an increase in capital goods of 23.5% YoY and consumption goods of 13.5% YoY.

Our Views

• Total exports in the first half of this year grew by 3.9% YoY increase to RM731.1bn. Concurrently, total imports have surged by 13.8% YoY to RM665.0bn, showing a continued momentum. This dynamic has resulted in a trade surplus of RM66.12bn. Moreover, the overall trade for the period stood at RM1.4tn, indicating a promising annual increase of 8.4% YoY.

• There was a quarterly improvement in both exports (2Q24: 5.8% YoY vs 1Q: 2.0% YoY) and imports (2Q24: 15.0% YoY vs 1Q24: 12.5% YoY), leading to a slower reduction in the trade surplus (2Q24: -42.7% YoY), which stood at RM32.0bn. This performance was only marginally better than the -46.2% YoY recorded in the first quarter, which amounted to RM34.1bn. Upon closer examination of the trade surplus during the quarter, there is a possibility that this segment will contribute to the Real Gross Domestic Product (GDP) during the period. Today, the Department of Statistics Malaysia (DOSM) will publish its Advance GDP Estimates for the second quarter.

• 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. The global semiconductor market posted a remarkable year-to-date performance with a double-digit increase of 19.3% YoY in May 2024, driven by strong growth in the Americas and Asia-Pacific regions.

• Moreover, Malaysia has experienced a notable increase in the import of intermediate goods from December 2023 to June 2024. This trend suggests that the country's exports may rise soon. 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.

• However, it's important to exercise caution. China's factory activity contracted for the second consecutive month in June, while the non-manufacturing sector expanded at a slower pace. Data from the National Bureau of Statistics revealed that China's official purchasing managers index (PMI) for the manufacturing sector remained at 49.5 in June, unchanged from May and below the 50-point threshold that separates growth from contraction. The sub-index for production slightly decreased to 50.6 in June from 50.8 in May, while the gauge for new orders dropped to 49.5 in June from 49.6 in May. On top of that, China’s economy slowed in the second quarter, as a protracted property downturn and job insecurity weighed on domestic demand, keeping alive expectations Beijing will need to unleash more stimulus. The economy grew by 4.7% in the second quarter - its slowest since the 1Q23. It was also down from the 5.3% expansion in the previous quarter.

• We will continue to monitor developments in China, as its economic trends typically do correlate with Malaysia. Nevertheless, the correlation between both the economies is only 17.9%. This suggests that a downturn in China's economy is less likely to significantly impact Malaysia. However, given that a substantial portion of Malaysia's export products cater to Chinese demand, any prolonged economic slowdown in China could affect specific sectors. Additionally, Chinese investments play a crucial role in various Malaysian industries, and a decrease in investment flows from China might impact future economic growth. Thus, while the overall correlation remains low, the sector-specific effects warrant close attention.

Source: TA Research - 19 Jul 2024