PETALING JAYA: Malaysia’s foreign direct investment (FDI) upcycle is expected to persist into 2026, though at a moderated pace, Affin Hwang Investment Bank Research (Affin Hwang IB) says.
“The upcycle is sustainable into 2026, benefitting construction and utilities even as overall investment growth normalises,” the research house stated.
Private investment growth is projected to ease to 6.2% in 2026 from 9.1% in 2025, driven by digital infrastructure, artificial intelligence (AI)-related capital expenditure, and advanced manufacturing.
Key beneficiaries include data centres for hyperscale cloud and AI compute, electrical and electronics (E&E) for servers and advanced packaging, and utilities for grid upgrades and renewables. Second-order spillovers extend to precision engineering and electric vehicle components.
Affin Hwang IB said sustainability depends on addressing bottlenecks like energy and water availability, talent shortages, and trade policy uncertainties.
“Energy availability is the most immediate constraint, particularly for power-hungry data centres and E&E plants,” the report warns, highlighting the National Energy Transition Roadmap (NETR) targeting 31% renewable energy by end-2025.
At the same time, the semiconductor sector faces a talent gap, needing 50,000 engineers but producing only 5,000 annually, with the National Semiconductor Strategy aiming for 60,000 by 2030.
Geopolitical risks, especially US-China tensions, could impact E&E exports.
However, a diversified investor base from the United States, the European Union (EU), China, Japan, Singapore, and the Middle East, along with policies like the New Industrial Master Plan and NETR, may mitigate these.
Having noted that Malaysia’s FDI-led upcycle remains intact, powered by data centres, E&E and higher-value services, Affin Hwang IB said execution determines long-term momentum.
As 2025 closes, the research house remarked that “FDI momentum remains resilient, driven by higher-value investments in data centres, E&E and digital services.”
Actual inflows averaged RM54bil per year, or 3.3% of gross domestic product (GDP) from 2021 to 2024, exceeding the pre-lockdown average of RM34.5bil, or 2.4% of GDP.
Approvals averaged RM183bil annually, with sources including Singapore, the United States, the EU, China, Japan, and the Middle East.
However, in the first nine months of 2025, realised FDI fell 21.9% year-on-year to RM25.6bil, despite approvals rising 41.3% to RM150.8bil.
“The investment cycle is rotating as services anchor growth while manufacturing shifts toward more selective, higher-value projects,” said Affin-Hwang IB.
Services lead with a three-year rolling realisation rate of 116.5% in 2021 to 2024, up from 106.8% in 2017 to 2019, driven by domestic execution in finance, logistics, and information and communications technology.
Manufacturing’s rate fell to 43.1% from 79.2%, due to deliberate foreign deployments and longer project timelines.
Data centres remain the standout driver, positioning Malaysia as a regional hub, with approvals for information and communications jumping between RM60bil-RM140bil annually in 2022 to 2024 from RM8bil-RM12bil pre-2022, with 68% foreign-sourced.
“The influx of data centre capex (capital expenditure) is generating higher demand for power, fibre, engineering services, and high-skilled tech labour,” boosting E&E ecosystems.
Domestic direct investment (DDI) also grew at a compounded annual rate of 28.3% from 2022 to 2024 to peak at RM213bil last year.
Realised DDI rose 12.2% annually, supporting infrastructure and foreign manufacturing. Overall private investment realisation eased to 87.8% in 2021 to 2024 from 112.4%, reflecting global frictions.
