Malaysia manufacturing forecast to remain sluggish

Export growth at the same time is unlikely to post any significant rebound anytime soon.

OCBC Treasury Research noted:

Profit taking pushed the KLCI lower on Friday, with the bourse closing below the 1660 mark once again.

The September IPI and trade data as well as the BNM rate decision are factors to watch out for from the local front, although at the same time, we would not be surprised if some players would continue to find excuse to take profits in a busy week dominated by the US elections and China’s change of guards. Watch the 1650 psychological support.

The manufacturing sector has continued to slow in recent months and the only reason why we didn’t see a worse number in IPI for August was the fact that there was a strong sequential jump in the mining component, which was likely to be a one-off phenomenon more than anything.

We forecast IPI growth to come in at -0.90% yoy for September, while exports and imports are likely to have contracted by 3.2% yoy and 1.5% yoy respectively in September.

The manufacturing sector is likely to remain somewhat sluggish for now, and even if we have had some encouraging trade data in the region for September, Malaysia’s export growth is still unlikely to post any significant rebound anytime soon.

The drag created from the commodity sector has been rather apparent of late and should also be another factor that will weigh on export growth at this juncture.

Meanwhile, even if the BNM governor has somewhat softened her tone on policy rate trajectory going forward, we think that the central bank will maintain a neutral stance on the OPR for now. No change to the OPR rate this week.