Nearly a year has passed since Pakatan Harapan (PH) took office in May 2018. The new government has undertaken efforts to address Malaysia’s fiscal weakness and reform its institutions. But how are investors reacting to the first year of PH’s governance, and what challenges lie ahead? We held a talk on Thursday, 25 April with Dr Oh Ei Sun, Senior Fellow, Singapore Institute of International Affairs (SIIA), and Mr Edward Lee, the Regional Head of Research, ASEAN and South Asia, Standard Chartered Bank. The session was moderated by Associate Professor Simon Tay, Chairman, SIIA. Here’s a look at what came up during the discussion.
Economics: Looking Out, Looking In
While Malaysia is a domestically oriented economy, it has a high trade to gross domestic product (GDP) ratio of 140%. Hence, the current global economic context poses challenges for Malaysia. Global trade contracted in terms of volume in January 2019, and the general turn towards protectionism suggests that this trend will continue. It is therefore unlikely that trade will support Malaysia’s GDP growth this year, which is especially troubling given flat oil prices.
However, domestic consumption is expected to continue driving Malaysia’s GDP growth. 92% of growth in 2018 was attributed to increases in consumption amid the removal of the goods and services tax. Further, while public and private investments are expected to falter, Malaysia is well positioned to benefit from the US-China trade war due to its manufacturing capacity. Foreign direct investment (FDI) surpassed expectations in the fourth quarter of 2018, with a strong focus on the petrochemical sector.
Politics: Domestic and International Trends
Policymaking in Malaysia will continue to play out against a backdrop of political intrigue. Questions behind Prime Minister Dr Mahathir Mohamad’s succession plans persist, and PH’s unity will be challenged as Parti Keadilan Rakyat President Anwar Ibrahim tries to widen his political influence. On the other side of the aisle, the marriage of the United Malays National Organisation (UMNO) and Parti Islam Se-Malaysia (PAS) will pose a formidable challenge for PH as it tries to win Malay support. Government efforts to restore the status of Sabah and Sarawak as equal partners to Peninsular Malaysia will also be a source of tension.
Despite apparent fluctuations in 2018, Malaysia’s relationship with China has improved with the successful renegotiation of the East Coast Rail Link. While Dr Mahathir is not intrinsically anti-China, he has moved to renegotiate deals struck by Former-Prime Minister Najib Razak, which he deems unfair to both sides. More deals are expected once the Belt and Road Forum in Beijing ends.
Sectors to Invest In
As subjects of keen interest for Dr Mahathir, education and technology are two sectors that would be ripe for investment. The food and beverage industry is also benefiting from the boom in domestic consumption, although the benefits are less clear for department stores. The picture will be clearer when 2018 consumer data is available next month.
