Growth expected as ‘stars aligning’ for country

Why Malaysia is Becoming a Semiconductor Powerhouse

Malaysia has become a winner amidst the ongoing chip war between the U.S. and China, and here's why.

This video is based on publicly available data and analysis. It represents the author’s perspective and should not be taken as professional or financial advice.

Bursa Malaysia chairman Tan Sri Abdul Wahid Omar

 KUALA LUMPUR: Malaysia is in a “sweet spot” for economic growth and investment, with the “stars aligning” in its favour, according to industry leaders and market analysts.

This optimism stems from the country’s robust macroeconomic fundamentals, improving investment climate and strategic positioning in the global supply chain.

Maybank Investment Bank head of regional equity research Anand Pathmakanthan highlighted Malaysia’s acceleration in gross fixed capital formation, driven by a blend of domestic direct investment (DDI) and foreign direct investment (FDI).

“The good news is it’s not just FDI, it’s also DDI, which is far more important in terms of job creation and tax generation,” he said during his presentation at the Institute of Chartered Accountants in England and Wales Economy Insight Conference 2024 yesterday.

Anand said for the last 10 years, local companies have not been investing, which has a lot to do with political instability.

“They’ve been investing less and less in Malaysia, which is always a bad sign for any country,” he said.

But in the last two years, he said Malaysia is seeing a recovery in DDI.

“The recovery in DDI reflects the confidence that domestic businesses are feeling better about the environment. That (DDI) is going to be a key support when issues about trade crop up next year with Trump 2.0,” he said.

Meanwhile, Anand said Budget 2025 is “very well-balanced,” emphasising initiatives to crowd-in private sector investments.

He projected continued economic growth, supported by a civil service pay hike, minimum wage increases and enhanced cash handouts, which would sustain domestic consumption in 2025.

“Malaysia is in a very sweet spot, especially when it comes to attracting supply chain relocation and FDI,” he said.

Anand projected Malaysia’s gross domestic product (GDP) to conclude at 5.2% in 2024 and 4.9% in 2025, outpacing the Asean-6 regional average of 4.8% in 2024 and 4.7% in 2025.

Affin Bank Bhd president and chief executive officer Datuk Wan Razly Abdullah echoed the optimism, projecting GDP growth of 5.2% in 2025, up from the bank’s projection of 5% for this year.

He attributed this to stable oil prices, elevated crude palm oil (CPO) prices and active construction and technology sectors.

“The elevated price of oil and CPO will provide good income streams,” he said, adding that Johor and Klang Valley developments would boost the property sector.

“The stars are aligning for Malaysia thanks to our stable political environment and strong FDI flows.”

Wan Razly also expressed bullishness on the ringgit, predicting it to strengthen to RM4.10 against the US dollar by end-2025, supported by the US Federal Reserve interest rate cuts.

Adding to the optimism for Malaysia’s economic prospects, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar highlighted the robust performance of the local bourse, driven by a favourable investment environment and strong macroeconomic fundamentals.

“Malaysia has been a vibrant market for initial public offerings (IPOs) this year. Up to the end of November, we had 47 listings that raised a total of US$1.5bil. By year-end, we expect to close with 54 or 55 listings,” he said.

He noted that the average daily trading value for 2024 has increased by over 50% year-to-date, reaching approximately RM3.1bil.

Abdul Wahid believes this momentum will be sustained into 2025, with 19 IPO approvals in hand for next year.

“Looking at the pipeline, I think 2025 should be another good year,” he said.

He said “the overall good macroeconomics are being translated into the real world and capital markets,” coupled with a shorter processing time for IPO listings of just three months.

Separately, Abdul Wahid said Malaysia should further tap into the Asean market and leverage its strategic advantages, as the regional bloc is well-positioned amidst global uncertainties, particularly ahead of the United States’ tariff threats on China.

Abdul Wahid urged Malaysia to continue to pursue its relationship with Asean in a pragmatic and constructive manner to further capitalise on the bloc’s 670 million consumers.

“The biggest potential that we have is in Asean. Our trade and investments (in the bloc) is relatively low compared to other trade partners and that can be enhanced further,” he said.

Abdul Wahid also emphasised that Malaysia should not be mutually exclusive to any specific trade groupings, trade talks or bilateral agreements and should focus on further strengthening trade relationships.

In the realm of inflation, both Anand and Wan Razly anticipate a rise to 3% in 2025, up from the current 1.9%, mainly due to the targeted petrol subsidy scheduled to take effect mid next year.

Despite the projected uptick, both of them said Malaysia’s inflation rate will stay within a healthy range, underpinned by strong macroeconomic fundamentals and effective policy measures.

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Rating upgrade to spur fund inflows into Malaysia

PETALING JAYA: Analysts and fund managers are expecting further foreign fund inflows following a country upgrade by JPMorgan from “underweight” to “neutral.”

The rating upgrade could send further longer-term foreign interest into Malaysian stocks, they said.

The rerating had seen the FBM KLCI rising steadily.

The benchmark index is comfortably passing the 1,600 to 1,610 resistance and may reach 1,750 in the near-to-medium term, according to technical chartists.

Chief executive officer and founder of Tradeview Capital Ng Zhu Hann said the report by JPMorgan is a sign of confidence in the country’s economic outlook and could potentially increase fund inflows as it heads into the second half of the year.

“I’m not surprised by this rerating, but the timing to upgrade only now is a bit too slow.

“The FBM KLCI went up by some 230 points in a span of a year. The rerating can spur further inflows of foreign funds. In the past six months, the foreign funds returned, took profit and then they came in again,” Ng told StarBiz.

“For Bursa Malaysia, the second half will have more upside surprises as many things are going well for the country. Good policies are being formulated including structural reforms.

“The Malaysian stock market will continue to be the best performer this year.

“Some sectors that JPMorgan is ‘overweight’ on had seen their share prices go up such as Tenaga Nasional Bhd (TNB) and Westports Holdings Bhd.

“Focus will now be on the second and third liners including the small mid-cap stocks which have yet to run,” Ng added.

He noted further catalysts could come from a potential US Federal Reserve rate cut which would benefit emerging markets including Malaysia.

“Potentially, the ringgit weakness will diminish, inflation will go down and it will be good for the overall economic sentiment,” Ng said.

Former senior investment banker and seasoned investor Ian Yoong said the country is midway through the data centre investment theme, except for the power sector.

“The uptake of electricity from TNB and other power producers can only go up. Avoid the want-to-be data-centre plays. There is still a lot of value in non-data centre themed small mid-cap stocks,” Yoong said.

“The outperformance of the domestic mega-caps, namely TNB and Telekom Malaysia Bhd, which are the largest data centre owners and operators in Malaysia, will most likely lift the FBM KLCI from the current 1,623 to 2,000 by the end of 2025.

“The confidence and trust in the leadership of the country grows by the day,” Yoong added.

JPMorgan, in its upgrade report, noted that policy reforms, data centre investments and infrastructure buildout have become key tailwinds for Malaysia, in line with its outlook for this year, but they are progressing at a much stronger pace than it had anticipated.

In a TV interview with CNBC, JPMorgan head of Asia-Pacific (ex-Japan/China) Rajiv Batra said there were signs of this happening last year, adding that the quick pace of execution such as subsidy rationalisation is positively surprising.

“We need to give credit to the country’s administration and hence, we have upgraded Malaysia to ‘neutral’,” Rajiv said.

“Foreign investors’ positioning in Malaysia remains light, but there is greater upside once it inflects upwards. We are increasingly constructive on the Malaysian equities outlook, based on the tailwinds and raise our FBM KLCI target base case to 1,650 from 1,500 previously.

“Our preferred sectors and key picks include construction, utilities, technology, healthcare and ports,” JPMorgan said.

On the flip side, it also acknowledged the challenges of subsidy rationalisation, external volatilities and potential impact of the upcoming US presidential election, which could result in weaker consumption spending, a stronger US dollar and external demand.

Also, the impending civil servant pay hike in Malaysia is expected to have a positive impact on consumption spending patterns.It noted that the move would also help cushion the government’s measures on fuel subsidy rationalisation, which could initially dampen consumer spending and overall economic activity.

“The immediate economic adjustments may result in short-term volatility and uneven sector performance. The renewable energy and electric vehicle sectors could see accelerated growth from higher fuel prices,” JPMorgan said.

“The cuts in the subsidies will go towards key policies that would increase economic productivity – literacy, people reskilling or even the progressive wage policy, which Malaysia is taking inspiration from Singapore,” Rajiv said.

JPMorgan said attention would shift to the anticipated RON95 petrol subsidy rationalisation, noting it has a higher weightage to the consumer price index, at 5.5% compared with diesel at 0.2%.

It estimated that for every 10% increase in the RON95 retail price, it will add 0.5% points to the consumer price index compared with diesel at 0.02% points.

Meanwhile, the research house said political stability remained a key anchor that would continue to maintain investor confidence in the country.

“In our view, Malaysia’s current political stability is a cornerstone for sustained economic growth and investor confidence.

“The next general election is not until February 2028, which is in another 3½ years. That provides the government with a substantial window to implement and demonstrate the effectiveness of its policies,” the research house said.

“This stability ensures a more predictable and secure environment for businesses and investors, reducing the risk of sudden policy shifts and fostering long-term planning and investment, in our view,” it pointed out.

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