Malaysia’s time to shine

SINCE 2017, I have endured countless criticisms and scepticism from family, friends and business associates regarding the country’s economic challenges and the weakening currency. They were not wrong.

Seven years later, there is a stark departure from when the country vanished from investors’ radar. There were already signs of a positive turn towards the end of 2023.

In a recent roadshow to Hong Kong which Standard Chartered and HSBC co-hosted for the Malaysian government, investors displayed renewed enthusiasm for Malaysia. Our smaller group meetings with private equity (PE) firms particularly enabled investors to express their thoughts — good, bad and ugly.

These firms invest in private equity, including private credit such as junior debt, mezzanine and into sectors like infrastructure, climate, technology and real estate. These few firms alone collectively manage over US$1 trillion in assets under management, bringing not just international capital but also operational expertise, new opportunities and synergies to create regional and global champions of our local companies.

These are critical and necessary ingredients for our capital market and economy to prosper as we march towards a high-income nation. Clearly, “good” significantly outweighed the “bad and ugly”, which reinforced my conviction that we are on the right track. It is truly Malaysia’s time to shine.

Geopolitical, geographical advantage

China has always been the playground for Asian private equity and investment firms, but geopolitical issues today may put pressure on justifying further investments in the country.

When investors look to Asean, the poster children of Vietnam, Thailand and Indonesia are undergoing political transitions, which makes Malaysia stand out as a viable and stable destination apart from high-cost Singapore.

One investor particularly liked Malaysia’s fiscal discipline and inflation, which have been surprisingly modest given the recent subsidy withdrawals and relatively positive growth environment.

Aside from the commonly known interest in semiconductors, data centres and renewables, another investor named medical tourism and education among the key sectors with potential, emphasising that Malaysia can continue to play to its strengths in terms of its geographical advantage in Asean.

Medical tourism is a great export, with neighbouring Indonesia being a big, and as yet, untapped market, while also helping retain the country’s talents. Positioning Malaysia as a hub to build a funnel of future talents through the education sector can also act as another pillar to push for stronger growth.

Growth factors aplenty

Some of the conversation also centered around the pull factor of the country’s low unemployment rate which stays low at 3.3%, even as the participation rate continues to inch higher.

Meanwhile, portfolio investment and other such income increased a cumulative 0.5% in gross domestic product in the first half of 2024, compared to last year. This may partly be due to the government’s initiative to encourage relevant bodies to repatriate foreign investment income.

In the capital market, another investor pointed to opportunities in developing Malaysia’s private credit market. For example, Australia and India are actively relying on private credit to step into a space where banks struggle. This combines perfectly with blended finance that helps unlock more capital avenues for climate or infrastructure projects.

Beyond these growth factors, the investors praised Malaysia for its supportive policies, excellent infrastructure and political stability. They agreed on the importance of building SME ecosystems around such foreign direct investments (FDIs), which can better realise Malaysia’s promise — wages are too low and talent retention will be problematic if we are not able to ring-fence their future.

Opportunities for acceleration

The economy surpassed expectations with its 5.9% year-on-year growth in the second quarter of this year, driven in part by strong private sector growth and a recovery in external demand, yet inflation has remained below 2%.

We think Malaysia will grow further this year, with some upside potential. The strong growth may also be accompanied by some increase in inflation amid subsidy rationalisation but external demand recovery, public infrastructure investment and stable household spending remain supportive of continued momentum into the second half of the year.

Despite the soft global outlook narrative, we have seen stronger-than-expected investment activity, both public and private, alongside strong FDIs. The ringgit has been Asia’s strongest performing currency so far.

Authorities’ engagement with stakeholders to encourage repatriation, conversion and hedging of foreign currency have been the key trigger, while underlying fundamentals have also been ringgit-positive.

Amidst the geopolitical tensions, the focus on supply chain diversification as many conglomerates and countries are forced to choose between the United States and China benefits Malaysia and plays to its strengths.

The upturn in the global electronic cycle should also continue to benefit Malaysia and there remains robust interest in the electrical and electronics sector, where Malaysia has been traditionally strong.

The proposed Johor-Singapore Special Economic Zone, which could bear fruit as soon as November this year, is poised to become a compelling world class manufacturing and services hub.

Sarawak has also been seeing tremendous investor interest, given its focus on energy transition in its journey to net zero and positioning itself as a major digital and energy powerhouse in the region.

The rising investor interest and optimism in Malaysia this year, and the country’s growth prospect is exciting — especially after a subdued 2023! I have always believed that the country has much potential that remains untapped, and now, the timing and the narrative is right. What remains is for us to leverage our strengths to march on proudly.