Malaysia's export sales surprised on the upside but mainly due to valuation effect

Malaysia's export sales surprised on the upside but mainly due to valuation effect. The headline export growth number registered an expansion of 4.1% YoY, stronger than market expectation of 1.3%. Imports fell 6.1%, which delivered a trade surplus of MYR 10.2bn, significantly higher than the previous month's MYR 2.4bn surplus. 

However, what is interesting is that the trade figures are all reported in local currency terms. And the ringgit has depreciated by about 28.9% YoY against the USD in August. Such drastic depreciation in the local currency has essentially provided the valuation lift to the headline trade figures. In USD terms, exports would have shrunk by 18.6% compared to the same period last year. Imports would have plunged by 26.6%! Besides the valuation effect, sharp currency depreciation probably has also led to weaker import demand.

The bottomline is that outlook is deteriorating on the external front, which will likely weigh down on growth performance. The headline export figure in local currency terms is not exactly reflective of that and should be taken with a pinch of salt.