Business optimism remains strong in Malaysia

PETALING JAYA: Business optimism in Malaysia remains strong despite the decline in the June manufacturing purchasing managers’ index (PMI).

Counter-balancing the June PMI contraction was the continuing growth in external demand reflected in exports.

According to MIDF Research, business optimism in the country has remained solid since May even though Malaysia’s manufacturing PMI has fallen below the 50-point level, which indicates contraction.

“The fall in the PMI is mainly due to lower demand and output requirement.

“However, new orders from abroad continue to rise for the second time in three months. Increase in new export orders reflect firming global as well as regional demand for Malaysia’s goods,” the brokerage wrote in a report yesterday.

The headline Nikkei Malaysia manufacturing PMI, which gauges manufacturing performance, fell to its lowest reading in five years at 46.9 last month from 48.7 in May. The latest report on Monday by IHS Markit, which compiled the survey, implied that business condi- tions in the country had deteriorated in the second quarter of this year.

On a positive note, AmBank Group Research said the latest PMI data was not surprising, as it expected the overall business sentiment to bottom out sometime in the second half of 2017.

“We expect the headline PMI data to experience headwinds going forward since June’s production and new orders are worse than May’s, added with stagnant employment and lower purchasing activity and input stocks,” AmBank said in a report.

“However, the downside to the potential PMI headline data could be limited. Optimism remains in the business environment, especially with the cost pressures having eased to the weakest in eight months in June,” it explained.

AmBank noted, the moderate improvement on the global front and stable commodity prices should see exports supporting the domestic economy. “New orders for exports rose for the second time in three months. In the meantime, forward-looking indicators are also pointing to a positive trend,” it said.

Meanwhile, Affin Hwang Capital noted that there was some disconnect between Markit’s manufacturing PMI and Malaysia’s industrial production index (IPI), especially in the manufacturing output.

The brokerage pointed out that growth in total IPI moderated from 4.6% year-on-year (y-o-y) in March to 4.2% in April, but growth in manufacturing output rose strongly from 5.9% to 6.7% during the same period.

“We also believe growth in IPI will remain strong in May and June, supported by strong exports, reflecting steady overseas demand for electrical and electronic (E&E) products,” AffinHwangDBS said.

It pointed to the latest economic release by China’s National Bureau of Statistics, which showed China’s imports from Malaysia grew 19.8% y-o-y in May compared with 11.7% in April, in saying that the data was reflected in strong export growth for Malaysia. And between May and June, China’s manufacturing PMI recovered from 49.6 to 50.4, which should bode well for Malaysia. “We expect Malaysia’s manufacturing PMI to recover in the months ahead in tandem with the global PMI,” AffinHwangDBS said.