Moody’s: Trade tensions, China slowdown spillover effects cloud Asia outlook

SINGAPORE: The recent escalation of trade tensions between the US and China will further cloud the trade and economic outlook in Asia, with a predominantly negative effect at the sector level, said Moody’s Investors Service in a new report.

At the same time, US importers will continue to divert some trade away from China over time, a credit positive for some economies and sectors in the region.

“The US-China trade dispute has significantly weakened the bilateral merchandise trade flows between the US and China, with spillover effects already spreading across Asia,“ said Michael Taylor, a Moody’s managing director and chief credit officer for Asia Pacific.

Moody’s said the trade dispute’s spillovers are mainly concentrated on exports of intermediate inputs and capital goods to China through integrated supply chains. Computers and electronics, and to a lesser extent, machinery, are the most exposed sectors in Asia to the spillover effects.

“However, a rising level of exports from some other Asian economies to the US will remain a mitigating factor, with US importers diverting some trade away from China to Taiwan and Korea for electronic components, and to Vietnam and Malaysia for semiconductor devices,“ added Taylor.

Some Asian exporters have also gained share in the trade of consumer goods such as bicycles, handbags, furniture, clothing and footwear to the US.

“If US importers gradually seek alternative sources of final consumer goods from the rest of Asia to circumvent the direct tariffs on these imports from China, the substitution effect will be credit positive for Asian exporters in these sectors,“ said George Xu, a Moody’s analyst, and co-author of the report.

“However, if the additional US tariffs trigger a gradual trade rerouting by Chinese consumer goods exporters to other Asian markets, domestic producers in those markets with greater local exposure and more replaceable products would likely face increased competition,“ added Xu.

Moody’s report takes a bottom-up approach to identify sectors with the highest exposure to spillover risks from a prolonged US-China trade dispute and from China’s continued economic slowdown.

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MMIS debuts on LEAP Market

KUALA LUMPUR: Precision engineering parts manufacturer MMIS Bhd made its debut on the Leading Entrepreneur Accelerator Platform (LEAP) Market of Bursa Malaysia Securities Bhd this morning with an opening price of 12 sen, a 20% or 2 sen premium over its IPO price of 10 sen.

Its first traded volume was 2 million shares.

MMIS placed out 50 million new shares representing 10% of the company’s enlarged share capital to selected sophisticated investors at 10 sen per share, raising a total of RM5 million. Upon its debut, MMIS will have a market capitalisation of RM50 million.

The company manufactures precision engineering parts and provides services for multinational customers in the semiconductor industry value chain and also cater for a wide range of industries, including but not limited to medical, engineering, electronic packaging, oil and gas, power generation and automotive.

At the listing ceremony, MMIS managing director Loh Chin Soon said the precision engineering industry in Malaysia has shown promising growth prospects.

“With our strong portfolio of customers and assets, we are confident that MMIS will be well-positioned to ride on the industry’s growth in the long-term,” he said in a statement.

He said presently the average utilisation rate of its computer numerical control (CNC) machines is at 73% while its production space is fully utilised.

“In anticipation of increasing orders, we will need more production space. As such, we plan to use part of the proceeds raised from the listing and bank borrowings to enlarge our current facility and increase floor production with our recent acquisition of a 4,252 sqm (1.05 acre) parcel of land beside our existing production facility to increase floor production space from 32,400 sq ft to 66,600 sq ft by end of 2020,” he added.

MMIS’ machinery is able to undertake a wide range of specifications that allow them to expand its offerings to future and existing customers, as well as to penetrate various industries to acquire new customers.

“We intend to leverage on our capabilities, technological know-how and proven track record to further expand our range of offerings to our existing customers, and to acquire new customers via targeted sales and marketing activities. Since we have existing customers in the medical and engineering industries, we believe that we can expand our product and service offerings in these new market segments,” he added.

Loh said the listing will enhance MMIS’s vision of becoming the leading manufacturer and total solutions provider in precision metal fabrication in Malaysia and in the Asean region.

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