Published on 02 Dec 2019.
RAM Ratings expects Malaysia’s imports and exports to contract a respective 6.8% and 8.2% in October, resulting in a trade surplus of RM14.4 bil for the month. The continued lacklustre showing is underlined by subdued global trade and industrial performance in the same month, along with high-base effects from 2018.
The fruition of a preliminary US-China “phase one” deal is unlikely to spark an immediate revival in trade momentum as businesses will likely remain wary of the uncertainties looming over subsequent phases. Additionally, the recent signing of a legislation supporting protesters in Hong Kong by the US may complicate future trade negotiations. Given past flip-flops on both sides, more progress will be needed to revive business optimism and, consequently, any notable rebound in global demand.
The first phase of the Sino-American trade deal is also unlikely to reverse any realignment in supply chains arising from the dispute. Largely induced by the US’s more prohibitive trade barriers against China, major Asian exporters of electrical and electronic (E&E) goods experienced a marked decline in their share of overall E&E exports to China. As a consequence, regional distribution patterns have changed as producers have been trying to circumvent such barriers. While some economies such as Taiwan have gone on to exporting directly to the US, some producers like South Korea and Malaysia have diverted their supplies to new production hubs in Vietnam and Taiwan.
Despite 2019 being a weak year for the semiconductor sector, recent shipment trends have shown signs that the pace of the decline may have bottomed out. “There are some bright spots for the E&E sector, including falling inventory-to-shipment ratios for major regional tech exporters and also a gradual pick-up in orders. The rollout of new products in the tech space – such as those related to 5G and the Internet of Things - could also lend some support to this sector,” observes Kristina Fong, RAM’s head of research. All these factors should shore up the resilience of the E&E sector, a key export for Malaysia.
Woon Khai Jhek, CFA
(603) 3385 2512
(603) 3385 2577
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad