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What Happened to the Malaysian Manufacturing PMI in June?

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Manufacturing activity in Malaysia

Manufacturing activity in Malaysia (EWM) fell to a record low in June 2017. The lower manufacturing index in June 2017 was primarily due to a drop in both output and new orders. The Nikkei Manufacturing PMI (purchasing managers’ index) in Malaysia fell to 46.9 in June 2017, compared with 48.7 in May 2017.

Manufacturing activity in June 2017

Malaysia’s (EEM) manufacturing PMI recorded its lowest reading in the past five years in June, as both output and new orders fell for the month. Business conditions worsened in 2Q17, with the average PMI coming in at 48.7. Remember, a PMI reading below 50 indicates contraction, while a reading above 50 indicates expansion.

But the drop in new business was marginally offset by increased exports in June 2017, according to the Markit report on July 3, 2017. New orders from international markets saw a modest increase for the second time in the last three months as of June 2017. The increased demand was mainly from Asian economies like China (FXI), Vietnam (VNM), and India (INDA).

Purchasing activity and employment

The lower demand in June 2017 impacted buying activity in the manufacturing sector. Employment remained stagnant due to the lack of new incoming business.

On the cost front, price pressures eased to an eight-month low, as both input and output costs rose slowly in June.

Expectations

Despite the reduced demand in June 2017, manufacturers’ optimism level stayed high due to the improved expectation of client demand over the next 12 months. The iShares MSCI Malaysia ETF (EWM), which tracks Malaysian equities, fell ~1% in June 2017. So far in 2017, EWM has gained ~19% as of July 10, 2017.

In the next and final part of this series, we’ll discuss the overall business confidence in Malaysia.

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