Kenanga Research said the buoyant trade and investment performance would accelerate the manufacturing sector recovery.
PETALING JAYA: Despite June data indicating a slight contraction in Malaysia’s manufacturing activity, the market remains optimistic about the medium-term outlook.
This positive sentiment is supported by improving trade and investment flows, among other positive indicators, in the country.
Kenanga Research said the buoyant trade and investment performance would accelerate the manufacturing sector recovery.
“We expect a significant expansion in the manufacturing sector, backed by resilient domestic demand, coupled with the robust foreign direct investments to Malaysia, which were largely influenced by the country’s favourable investment policies for foreign investors,” it said.
“The buoyant labour market, which will be driven by the upcoming implementation of the progressive wage policy, will further improve labour productivity. This could become an additional support for the recovery in the manufacturing sector,” it added.
Kenanga Research said the improvement in the global semiconductor industry, rooted by computing needs and technology upcycle, coupled with China’s economic recovery, would further benefit Malaysia.
It was reported on Monday that the seasonally adjusted S&P Global Malaysia manufacturing purchasing managers’ index (PMI) came in at 49.9 in June, down from 50.2 in the preceding month and slightly below the threshold 50-mark.
On average, the PMI for the second quarter (2Q) of 2024 was 49.7, up from 49.0 in 1Q24.
TA Research said the average reading for 2Q24 was the highest since 3Q22, indicating a potential improvement in economic growth over this period.
“The data also suggests that the recent solid expansion, as indicated by official manufacturing production data, has continued beyond April,” the brokerage said.
Moreover, it said, insights from S&P Global suggested the PMI data represented an improvement relative to the opening part of the year, auguring well for upcoming official data prints.
“Looking ahead, sustained growth in new orders is expected over the coming year, bolstering optimism for the outlook of manufacturing production,” TA Research said.
It pointed out that the historical relationship between PMI and official data indicates an upward trend in both gross domestic product and manufacturing production, pointing towards improvement in the second quarter of 2024.
