Fitch Research sees FDI into Malaysia picking up

Johor Bahru commercial and residential buildings. - Bloomberg

KUALA LUMPUR: Fitch Solutions Macro Research expects foreign direct investment (FDI) into Malaysia to likely to continue picking up over the coming quarters and continue decreasing Malaysia’s vulnerability to outflows.

In its outlook report on the Malaysian economy on Thursday, it said this view was firstly supported by Malaysia’s successful renegotiation and resumption of the RM44bil East Coast Rail Link and other China-backed projects would likely to bring more direct investment into the country.

Fitch Research said there was further upside risk from the possibility of other projects being resumed, such as the Kuala Lumpur-Singapore High Speed Rail, especially if the government manages to decrease its high public debt load to what it deems a sustainable level.

Second, Malaysia was a possible beneficiary of companies accelerating their relocation process away from China as a result of the US-China trade war, which would see increased direct investment flowing in.

It pointed out Malaysia’s current account balance was likely to remain under strong external pressure from slowing global growth, which has been exacerbated by elevated tariffs between the US and China.

“However, we expect the goods balance to be supported by declining imports over the coming months, with the exchange rate acting as a natural adjustment mechanism. This should see the current account remain in surplus over the coming quarters, ” it said.

Fitch Research said while Malaysia was still vulnerable to capital outflows during periods of risk-off sentiment, this vulnerability had reduced by an improving liabilities composition in its international investment position.

“We at Fitch Solutions maintain our forecast for Malaysia’s current account balance to come in at 2.9% of GDP in 2019 and 2020. The goods balance is likely to remain resilient amid the ongoing US-China trade war, with falling imports offsetting slowing exports.

“This trend is likely to continue with the ringgit acting as a natural adjusting mechanism. With direct investment making up more of Malaysia’s international liabilities, and ‘hot’ money making up less, we believe that Malaysia is better positioned than before to weather periods of risk-off sentiment, ” it said.

As for Malaysia’s current account, it expected it to remain in surplus over the coming quarters, despite pressure from the US-China trade war and the slowing global economy.

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