Malaysia's E&E segment expected to sustain manufacturing growth

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E&E segment supports growth

Highlights

Malaysia's manufacturing PMI rose to 51 on October 26 from 49.9 in September, its highest level in six months, supported by AI demand.
Input cost inflation rose amid the Middle East conflict, prompting manufacturers to raise selling prices and pushing sentiment to a six-month low.
MBSB Research stressed that rising input costs, supply chain disruptions and weak sentiment remain key risks, although the E&E segment remains a growth driver.

This article was translated from the original. Read the original version by our correspondent here.

PMI recovery supported by demand and exports

As reported by The Edge Malaysia, Malaysia's manufacturing PMI rose to 51 on October 26 from 49.9 in September, its highest level in six months, with S&P Global largely attributing the increase to stronger demand for AI-related products.

In a note on Tuesday, Philip Research said domestic export data showed that several other industries also recorded stronger export activity, which could support higher output. However, the research firm expects subdued near-term sentiment to limit the scope for a stronger rebound in non-E&E sectors.

The outlook is also consistent with regional developments. Phillip Capital said Indonesia's manufacturing PMI rose to 54, its highest reading since March 2024, driven by new orders increasing at their fastest pace in five years, while Thailand's PMI rose to 54.8, its highest level so far this year, following a sharp increase in new orders.

Japan, South Korea and Taiwan also continued to record increases in new orders and output, although the pace of expansion slowed in all three economies.

Cost and supply chain risks remain a drag

MBSB Research said the latest reading was also supported by renewed growth in output and new orders, with new orders expanding at one of the fastest rates in four and a half years. Stronger demand boosted purchasing activity and sustained employment growth for the third consecutive month.

However, input cost inflation is accelerating, partly due to the ongoing conflict in the Middle East, as higher transportation and raw material costs have prompted manufacturers to raise selling prices. This has weakened sentiment to a six-month low amid concerns about rising costs.

MBSB said rising input costs, ongoing supply chain disruptions and weaker business sentiment remain key downside risks. Continued geopolitical tensions in the Middle East and high transportation costs could keep weighing on manufacturers' margins, although the E&E segment is still seen as a key driver of sector growth.

In our earlier article about Nasdaq 100 volatility driven by concerns over AI supply chains and rising financing costs, we emphasized that the index's recovery appeared fragile despite a daily rebound. We also discussed how weakness in semiconductor and AI-related stocks, along with mixed technical signals, limited upside potential and kept sentiment in the technology sector cautious.

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