Mobius still bullish on Malaysia

Mobius: ‘Palm oil is also a key export for Malaysia (the world’s second-largest producer) and its price has been weak, and that certainly has had at least a psychological market impact.’

PETALING JAYA: Mark Mobius (pic), the executive chairman of Templeton Emerging Markets Group, remains bullish on Malaysia and sees sectors such as oil and gas (O&G) and consumer products as attractive investment bets.

In his newsletter to investors, Mobius also noted that the country’s economic growth has been very good while the ringgit is undervalued. He also expressed optimism that issues surrounding 1Malaysia Development Bhd and the related political scandal would not have a long-term impact on Malaysia.

Looking at some other fundamentals in Malaysia, the fund manager noted that the country was a net exporter of O&G, so lower prices have had a negative impact.

“Palm oil is also a key export for Malaysia (the world’s second-largest producer) and its price has been weak, and that certainly has had at least a psychological market impact.

“However, the use of palm oil globally is not declining, mainly because of demand from China and India, and we don’t expect prices to stay permanently depressed,” Mobius said, adding that Malaysia had a diverse array of export products and was actually predominantly a consumption-driven country, representing 60% of gross domestic product (GDP).

“Malaysia’s economy has a large service sector, which to me is a sign of its maturity. GDP growth since 1996 has averaged about 5%, and while various forecasters call for growth below that level this year, it still appears to be experiencing a solid growth rate. Looking at some other metrics, household debt is at 89% and public or government debt-to-GDP is at 54%.

“While those readings may seem high to some observers (and higher than they were in 1997 during the Asian financial crisis), both readings are actually less than that of the United States. Malaysia’s trade surplus is good (which not many countries can boast of) and foreign reserves remain at a healthy level,” Mobius said.

He believes that Malaysia’s demographics represented a positive factor going forward, as its young population was entering its most productive years and represents a big consumer market. He thinks that Malaysia has much more potential in many consumer sectors, as well as in tourism.

“If economic fundamentals do not seem to be signalling a crisis, it seems that political scandal has been more likely behind the flight of foreign investors from Malaysia,” he said.

Mobius said the default of 1MDB and the related political scandal had affected investor sentiment and confidence. However, foreign investor flows are often short-term in nature and temporary.

“Negative news certainly affects investor confidence, but we generally see these periods of market overreactions as opportunities – if we find reasons for a recovery long term.

“We find a number of sectors to be attractive in Malaysia today, including integrated oil companies involved not only in production but also exploration, refining and marketing, as well as companies involved in the consumer sector,” he said.