A Guide to Investing in Malaysia

With a new government in place, we explore the key facets of this Southeast Asian nation's investment landscape.

following the conclusion of the 14th Malaysian general election (GE14) in May, a new government has been sworn in, led by returning prime minister Mahathir Mohamad. An air of optimism now dominates the country, and there is hope that its leader will guide it towards prosperity and progress. All this bodes well for Malaysia’s economy and future. We explore some key facets of the Southeast Asian nation for businessmen and investors seeking opportunities.

BENEFITS & RISKS

The Malaysian economy has experienced healthy growth throughout this decade. In 2017, it reached 5.9%, and this year, the number is expected to range from 5% to 5.5%. Although there is a slight slowdown, conditions are still positive.

Working in its favour is the currency undergoing a rebound in 2017. The year before, the ringgit was one of Asia’s worst-performing (falling by more than 20% against the US dollar), but became one of the region’s best within 12 months, gaining more than 10% against the US dollar.

It has maintained its commodity-led economy by being a top producer of palm oil and rubber. It also produces and exports oil, natural gas and electrical and electronic goods. At the same time, the government has laid out a new plan to shift the economy to one focused on innovation, creativity and knowledge-based activities.

On the flipside, there are the usual geopolitical risks associated with emerging economies such as this. Also, with the new government in place, there is uncertainty surrounding the continuity of certain projects. Less than a month in and it has already announced it is cancelling the Kuala Lumpur-Singapore High Speed Rail.

Analysts expect that in the weeks and months ahead, once greater clarity is had on the government’s policies, the stock market especially will stabilise, as will any uncertainty faced by citizens and investors alike.

For instance, Mahathir has started cutting jobs, reducing ministers’ salaries and dissolving salaries to minimise spending and the country’s debt, which currently exceeds RM1 trillion.

The Malaysian economy has experienced healthy growth throughout this decade. In 2017, it reached 5.9%, and this year, the number is expected to range from 5% to 5.5%. Although there is a slight slowdown, conditions are still positive.

Working in its favour is the currency undergoing a rebound in 2017. The year before, the ringgit was one of Asia’s worst-performing (falling by more than 20% against the US dollar), but became one of the region’s best within 12 months, gaining more than 10% against the US dollar.

It has maintained its commodity-led economy by being a top producer of palm oil and rubber. It also produces and exports oil, natural gas and electrical and electronic goods. At the same time, the government has laid out a new plan to shift the economy to one focused on innovation, creativity and knowledge-based activities.

On the flipside, there are the usual geopolitical risks associated with emerging economies such as this. Also, with the new government in place, there is uncertainty surrounding the continuity of certain projects. Less than a month in and it has already announced it is cancelling the Kuala Lumpur-Singapore High Speed Rail.

Analysts expect that in the weeks and months ahead, once greater clarity is had on the government’s policies, the stock market especially will stabilise, as will any uncertainty faced by citizens and investors alike.

For instance, Mahathir has started cutting jobs, reducing ministers’ salaries and dissolving salaries to minimise spending and the country’s debt, which currently exceeds RM1 trillion.

POLITICAL CLIMATE

In a move that few saw coming, Mahathir tipped the scales against long-time ruling coalition Barisan Nasional and won the 2018 elections. In doing so, he became the Malaysian prime minister for the second time, after leaving the post in 2003.

He has announced that Anwar Ibrahim - whose downfall Mahathir was responsible for - will be the next prime minister in two years’ time, and named his wife Wan Azizah as deputy prime minister.

It remains to be seen if Mahathir will live up to his promise, but contributing to a favourable political climate is his decision to form a government made up of Malays and Chinese - especially with many of the latter in high-ranking positions.

While he has not been overly supportive of Chinese investment, Mahathir has indicated that he will follow through with the projects his predecessor has approved. At the same time, he is determined to eradicate corruption and set the country on the path to reform.

STOCK MARKET

Bursa Malaysia is the stock market of the nation. It is one of the most active in Southeast Asia and made up of approximately 900 listed companies across 60 industries.

In total, the market capitalisation of all the listed shares exceeds RM1.8 trillion. Its daily average value traded can vary between RM2 billion and RM3.5 billion, making it a lively exchange with no shortage of action.

30 of the largest firms that make up Bursa are combined to create the FTSE Bursa Malaysia KLCI, also known as the FBM KLCI. This is a capitalisation-weighted stock market index.

The companies include bank CIMB Group Holdings, integrated resort operator Genting Malaysia, IHH Healthcare, natural gas distributor Petronas Gas, global trading and logistics player Sime Darby, and Telekom Malaysia.

Interestingly, Bursa Malaysia is one of the few exchanges in the world where you can invest in listed subsidiaries of foreign multi-nationals. These include Carlsberg A/S, Heineken N.V. and British American Tobacco.

PROPERTY MARKET

According to Savills Malaysia executive chairman Datuk Christopher Boyd, the conclusion of the GE14 will encourage those who were holding back to invest their money in the residential market.

“Generally, we foresee prices firming up in 2019, and it will be in early 2020 before developers can respond by stepping up supply. In short, particularly in Greater KL and Penang, there has never been a better time to buy,” he said, in a report by the New Straits Times.

This comes on the back of news of oversupply in sectors such as high-end residential, office and retail. In fact, in November last year, the government put a temporary freeze on approvals for the development of projects that sell units costing more than RM1 million each.

Nonetheless, between 2005 and 2015, home prices in Malaysia rose by 96.1%. in 2016, they went up a further 7.1%. This bodes well for those looking for a longer-term investment horizon.

TAXES

An open economy, Malaysia encourages investment through a variety of incentives including tax-related ones. These include pioneer status, special investment capital allowances, a range of tax deductions, access to government-sponsored industrial estates, and concessional grants and loans from government agencies.

Further incentives are available for investors in activities from manufacturing to hotels, healthcare, technology, biotechnology, Islamic finance and tourism. In line with the intention to upgrade its economy, perks are also in place for those who help adopt technology drivers such as big data analytics and autonomous robots in the manufacturing sector and businesses related to it.

THE BOTTOM LINE

With favourable taxation policies, a government that is for the people, and a lively stock market, just to name a few reasons, there is no time like now to take a closer look at Malaysia and explore the opportunities available.

This article was originally published by WEALTH, Asia’s marketplace for investors.

 

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