August 23, 2024
KUALA LUMPUR – Once perceived as a regional laggard, Malaysia is now making headlines for its outperforming economy and stock market, amid an influx of investments into new data centres, artificial intelligence (AI), and semiconductors.
The country is regaining investor confidence as policy reforms are undertaken to trim budget deficits and the RM1.22-trillion Federal Government debt.
Malaysia’s gross domestic product (GDP) for the past two quarters has also beaten market expectations, growing by 4.2% in the first quarter of 2024 (1Q24) and 5.9% in 2Q24.
As global corporations diversify their supply chains from China and into South-East Asia, Malaysia has been actively capturing some of the investments.
In the January to March 2024 period, approved investments jumped by 13% year-on-year to RM83.7bil, expected to generate 29,027 new jobs for Malaysians. Foreign investments accounted for 56.2% of the amount.
Some of the investments announced have been rolled out, including the first phase of Infineon Technologies’ new fabrication plant in Kulim, Kedah, that will become the world’s largest 200mm silicon carbide (SiC) plant.
Prime Minister Datuk Seri Anwar Ibrahim and International Trade, Investment and Industry Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz have been busy pushing up investment numbers.
Between January and May this year, Anwar’s multiple foreign trips generated potential investments of RM77.58bil.
His visit to India this week elevated bilateral ties to a Comprehensive Strategic Partnership and RM4.5bil in investment commitments.
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India is forecast to become the world’s third-largest economy by 2028, overtaking both Japan and Germany. It is also the founding member of the BRICS, which Malaysia is keen to join.
(BRICS is an intergovernmental organisation comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates.)
The macroeconomic optimism, against the backdrop of steady inflation, has trickled down into the Malaysian bourse, with Bursa Malaysia hitting RM2 trillion in market capitalisation in May.
The benchmark index, FBM Kuala Lumpur Composite Index, is also inching closer to bull market territory. Since mid-2023, the index has rallied by over 19%.
Part of the reason for the rally is the return of some foreign funds. For the year until Aug 16, foreign investors were net buyers of local equities to the amount of RM1.25bil.
Foreign fund inflows, coupled with a weakening US dollar on interest rate cut expectations, have been good news for the ringgit.
In the year to date, the ringgit is the best performer among key Asian currencies against the US dollar, hitting 4.3780 on Aug 22.
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Anthony Dass, executive director of the Malaysian Institute of Economic Research, said Malaysia’s improving investor appetite is expected to continue in the second half of 2024 (2H24) and is likely to extend into 2025.
Current political stability, ongoing policy reforms, execution of the many frameworks and blueprints announced, strong commitment to sustainability and long-term competitiveness are the key drivers.
“The full year GDP is now expected to reach the top-end of the 4%-5% target. It could even surpass the 5% target driven by the positive sentiment,” he told The Star.
Beyond listed equities, Dass said the demand for domestic bonds is also poised to remain strong in 2H24.
“A potential sovereign rating upgrade in 2025 is on the cards. We could move up the ladder with A- from Fitch (now: BBB+) and A from S&P Global (now: A-),” he added.
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Rakuten Trade head of equity sales Vincent Lau said positive news flow on economic growth and development plans such as the Johor-Singapore Special Economic Zone have continued to fuel investor confidence.
“Policy reforms, corporate earnings recovery and the fact that Bursa Malaysia is still cheap in terms of valuation will continue to attract foreign funds into the equities universe.
“The rally in blue chip stocks is likely to flow into small and mid-cap stocks going into next year,” said Lau.
Positive news aside, the government still has a huge task ahead in maintaining the momentum built, amid lingering challenges.
Economist Geoffrey Williams said Putrajaya must focus on preventing the economy from “overheating”.
“Policy should be focused on both price and growth stability. There is now a clear window of opportunity to focus on structural reforms to boost incomes.”
On inflation, which is currently at historical normal levels, he said price pressures could pick up amid the economy growing strong.
“This signals future inflation which must be tackled now. We do not expect interest rate increases but prolonged above trend growth raises the upside risk of higher interest rates.
“Domestic factors such as the Akaun Fleksibel withdrawals will support consumer demand but so far these have been below the expected RM25bil and most of this has already filtered into the economy,” said Williams.