Malaysia Export and Imports Chart

We previously warned that whilst there will be some sporadic spurts of stronger exports, they may not signal a meaningful recovery yet. Our view is that exports may not recover to levels seen in mid-2008 for another 2-3 years. For example, there are several good company like FOONG LI TRADING – premier supplier of good quality sawn timber, timber products, plywood products, doors & window frame, beadings, moulding.

The YoY fall in Aug-09 exports computed continued to be led by a collapse of manufactured goods exports, weakness in commodity prices and a lower volume of commodity exports.

US workers facing record periods of unemployment, negative personal income growth in 4 of the last 6 quarters, and a sharp fall in wealth, will cut spending on the so many discretionary spending items that have formed the core of Asian exports, cannot anchor a global recovery. Restocking by businesses and

public sector spending can only provide a temporary bounce in output that must be rejoined by a consumer spending revival. A revival with conviction of investment spending by businesses is also out of the picture at this juncture with low capacity utilization globally at this juncture.

Weakening of exports accelerated in major markets. ASEAN exports accounting for 25.7% of total, fell a steeper 24.4%YoY (Jul-09: -20.1%YoY) on lower exports of electronics products, refined petroleum products and transport equipment.

Asia Export Growth League Table

Exports to China rose +0.9% YoY (Jul-09: -16.9% MoM), the first increase YoY in 10 months on gains in exports of electronics and crude oil. Exports to China were also 10.3% higher MoM. The positive YoY growth was due to a lower statistical base in Aug-08, the month when severe drops in exports to China began to be recorded in 2008. Exports to the US dropped (-26.7% YoY vs -29.0%YoY in Jul-09), also falling 7.8%MoM on lower electronics exports. The pace of drop in exports to Japan slowed (-25.0% YoY in Aug-09 vs -32.7% YoY in Jul-09) on gains in LNG and crude oil exports. The pace of drop for exports to the EU at -25.9% YoY was however, steeper compared to Jul-09′s -23.9%YoY due to palm oil as well as chemicals and chemical products exports letting up as the recession in major Euro zone economies particularly Germany.

Exports of Electronics were a shade lower MoM at RM20.57b in Aug-09 after rising for the 6th month in a row to RM20.63b in Jul-09 from RM18.6b in Jun-09 and constituted 43% (Jul-09: 42.2%) of exports although still down -13.1%YoY vs -15.6% YoY in Jul-09. Palm Oil exports making up 6.2% of exports (Jul-09: 8.1%) were down a sharper -35.3%YoY (Jun-09: -33.5% YoY) after a major MoM drop. Oil and Gas exports making up 12.5% of exports (Jun-1 09: 12.0%) fell 50% YoY, still amongst the most affected of export categories.

Chemicals and Chemical Products which contributed 6.1% of exports (Jul-09: 6.2%) fell -19.0%YoY (Jul-09: -26.3% YoY). Machinery and Appliances which made up 3.1% of exports (Jul-09: 3.6%) fell at a faster clip of -12.3%YoY (Jul-09: 10.2%YoY) and Timber Products adding up to 2.6% of exports(Jul-09:2.6%) fell

15.1%YoY(Jun-09:-16.0% YoY).

Imports at RM38.26b (Ju-09: RM40.98b) dropped by 6.6%MoM and were sharply off by 18.6%YoY (Jul-09: -16.0%YoY). Jan-09′s -30.4%YoY remains the fastest pace of annual contractions ever on record. Imports of intermediate goods made up 69.4% (Jul-09: 68.7%) of imports, and its fall on a percentage change YoY basis dampens somewhat hopes of a strong recovery, thus continuing the strong trend in preceding months that reflect the recovery in imports of raw material needs for goods to be processed for re-export. On the other hand, capital goods imported amounted to 14.3% (Jun-09: 14.8%) of imports, reflecting weaker capacity-boosting investment plans by domestic corporations that support future growth. Consumption goods made up 7.1% of imports (Jul-09: 7.2%), reflecting lower consumer spending. Consumption accounted for 65.3% of Malaysia’s real GDP in 2Q-09.

The Trade Surplus expanded again to RM9.58b (Jul-09: RM7.8b), a 22.2% jump MoM despite the MoM drop in exports. The widening of the trade gap left Aug-09′s surplus at exactly the mean YTD monthly surplus of RM9.58b. whilst it is still sharply off a peak at RM15.5b achieved in Jun-08 it is a healthy level. Whilst the trade balance dropped in Jul-09, it was read as a sign of some strength rather than weakness.

The Aug-09 data thankfully continues to hint at a V-shaped rebound after the exports slump hit a trough (see charts below). The current scenario does not yet rule out an L-shaped recovery for Malaysia although the possibility of a W-shaped recovery or a double-dip recession in the West appears small. The anchor for Malaysia’s export recovery appears to be China, but the sustainability of this source of exports recovery is thought unreliable whilst it is rising under conditions of a massive stimulus. The global economic turmoil may continue to drive further deterioration in the domestic environment.

Domestic sources of demand remain the key and steady implementation of the Stimulus Spending package is key. Our chief worry is the possibility the economy will fail to respond in a sustained manner and dismal private sector growth is observed way past the phase of aggressive public sector stimulus spending at a time when US consumers appear to be veering towards permanent frugality and Asian consumers are not ready to fill the void.

Price of commodities pulled back after rallying making new highs this year amid concerns about global demand which seems to hit a snag as inflation rises. The price of Crude oil closes below US$60 per barrel after staying above US$70 for a few weeks early June.

The price of Crude Palm Oil in the futures market fell 25% in a month from RM2,700.00  to RM2,000 per metric ton. Price of Gold fell as well from US$980 per ounce to USS910.

To add salt the wound in the market sentiment, the increasing H1N1 flu outbreak has become a great cause of concern if companies have to slow down production if employees are being infected. The market finally fell on-month after increasing for three consecutive months. The KLCI closed at 1,067.76 points on the 10th of July, 15.21 points or 1.4% lower than the previous month. The KLCI traded relatively more volatile in a trading range between 1,028.14  and  1,095.91 points last month.

Trading volume was relatively lower. Daily average trading volume fell from 2 billion shares to 1 billion shares on-month. This reflects the weak market sentiment.

As compared to other Asian markets, the Malaysian market is still one of the most defensive market, and notice that the western markets are the weakest performers even for the past 6 months.

The uptrend is still intact as the KLCI is still above the mid and long term 60-and 90-day moving average. The KLCI has tested the short term 30-day average twice and is now below this average market momentum is much weaker as compared to last month. The KLCI is only 7.7 percent above the long term 90 day moving, average (90-SMA) which is currently at 990 points. The difference in the previous month is 11%.

The momentum of the current up trend is getting weaker. The bears have started to take some grip in the market. Momentum indicators like the 14-day

RSI, 14-day Momentum and MACD have heels making new lows since last month. The indicator values are currently near the middle mark whirls separates the bulls and bears dominance. It has been favoring the bulls since end of March this year. The leading Ichimoku Cloud indicator has started to contract as well which means that the uptrend support is getting weaker, but does not sign a major bearish reversal yet at least for the next one month.

The Bollinger Bands which were expanding has also started to contract and this simply means that the KLCI is trading near its 20-day average. The mid­term swing of the Barros Swing indicator shows a lower swing high. The swings were higher since March. The weekly Average True Range (ATR) indicator has also declined almost half on-month. All these volatility indicators are suggesting a weaker momentum.

Conclusion

There were some weak technical indications last month that urges investors and trades to trade cautiously and in the past few weeks, the technical indicators have started to show stronger signs of the market getting more bearish.

Last month, I mentioned that the market may test the next resistance at 1,160 points but with heavy resistance and the KLCI did find strong resistance at 1,095 points. The probability of the KLCI testing the next resistance level has become thin. We may see a start of a bearish trend, as long as the KLCI remains below the 1,160 resistance level.

Expecting the KLCI to go into one more bear rally to complete the price cycle in the 3. or 4′ quarter and we already in the third. The forecast for KLCI is 700 points and is only valid IF the KLCI stays below 1.160 points. I have written my analysis about the price cycle in my previous two articles. Stay out of the market and if you have large positions, liquidate some of them and get them back when price gets lower.