Ten Reasons to Invest in Malaysia

Unlike its neighbor Singapore, the country of Malaysia is often overlooked by investors. The economy of Malaysia is commodity-based with palm oil, crude oil and rubber being the major exports. Among the Asian emerging markets, Malaysia has some unique comparative advantages. Some of the top reasons for investing in Malaysia are listed below:

1. The Malaysian banks was virtually unaffected by the global credit crisis last year that decimated many banks especially in the western world. The Top Banks such as May Bank, Public Bank, CIMB and Malayan banking (MLYBY.PK) were not involved heavily in derivatives and weathered the crisis easily.
2. After the Asian crisis, Malaysia enacted many regulations which prevented the reckless flow of capital into and out of the country. These regulations require that capital invested in Malaysia stay invested for some years before they can be taken out.
3. As the world’s largest producer of palm oil, Malaysia has a leadership position in providing cheap edible oil to many developing countries. Palm oil is a cheaper substitute for vegetable or sunflower oil which are used in cooking. There are many huge palm oil plantations in Malaysia which benefited nicely last year when palm oil prices soared. Kuala Lumpur Kepong which trades in the OTC market with ticker KLKSY.PK is engaged in palm oil and rubber production among other products.
4. In 2008, Foreign Direct Investment (FDI) into Malaysia increased by 38% (RM 46.1 Billion) from the previous year. Australia was the largest investor followed by US, Japan and Germany. However this year, FDI plunged to just $13 B from January thru May. But in the future FDI may increase substantially as the government has announced many liberalization measures and the country holds potential in sectors such as renewable energy, manufacturing, etc.
5. Since Islam is the largest and official religion in Malaysia, the financial sector follows the principles of Islamic finance and take very low risks compared to banks in other countries.
6. Since Independence from the British, the country has been a Parliamentary democracy with a stable government in most years. Hence political risk is low.
7. Corruption is lower in Malaysia relative other ASEAN countries such as Indonesia, Thailand and others.
8. In addition to palm oil and rubber, Malaysia is blessed with an abundance of forestry, fertile agricultural land minerals like copper, iron-ore,etc.
9. Crude oil and Natural gas were discovered offshore in the 1970s and today Malaysia subsidizes gasoline for domestic consumers and is a net exporter of crude oil. The famous Petronas Tower is owned by the national state-owned oil giant Petronas.
10. While Malaysia has failed to succeed in innovation based industries like IT, biotechnology, semiconductors, etc. it has been able to excel in the agricultural and commodity sector and more recently is heavily encouraging the growth of tourism, healthcare and education sectors. Genting Berhad (GMALY.PK) is a major entertainment company that operates the famous Genting Highland Resorts outside of Kuala Lumpur, Sentosa Island in Singapore and others.

The following chart shows the 30 Most Valuable brands of Malaysia:
Click to enlarge

Source: Interbrand

A simple and easy way to invest in Malaysian equities is via the iShares MSCI Malaysia ETF (EWM). It has about 50% of the assets in financials and industrials. This ETF has an asset base of $544 M and in 1 year has performed well with a growth of about 24%.

Comments

[MilesAndMore:]

The Top Banks such as May Bank, Public Bank, CIMB and Malayan banking (MLYBY.PK) were not involved heavily in derivatives and weathered the crisis easily.

Just to highlight some minor mistakes in the article above. May Bank should be written as Maybank and not separated. Malayan banking is the same as Maybank. Maybank is the brand name used in Malaysia for consumer banking. Malayan Banking Group is the complete name of Maybank.

Nov 08 10:01 AM

[mdmrjsds:]

You forgot to mention the overt racism exhibited by the Malays against the Chinese and Indian minority. Probably similar to the attitude of Indians in India to tribals and dalits. It's even enshrined in their laws. There is a catch phrase for it, buma putra?, meaning 'sons of the soil'. Sort of like the Klu Klux Klan. Incidentally, it is the Chinese and Indian minority that contribute the lion's share to wealth in Malaysia. The discrimination isn't as bad as in Indonesia though; there you get the feeling they would drag Chinese out of their houses and lynch them with the slightest excuse.

And on balance, Islam has to be considered a negative for investment purposes. It's said that they practice a more relaxed form in Malaysia. However, the stories coming out of Malaysia don't support that view (40 lashes for drinking a beer!), the mastermind of the Bali bombing was Malaysian, and Saudi Arabia is exporting mad dog Islam everywhere.

Nov 08 10:45 AM

[Rokjok777:]

I'm a bit sceptical as well, I travel to do business in Malaysia frequently and while it has promise and yes there was less reckless lending, it still has quite a few structural problems before it becomes anywhere near as vibrant as Vietnam or Singapore or China. Corrupt business practices are still widespread, mostly they just cause delay. It seems you always need to "hire" a "bid manager" if you're competing for a large contract, usually that's a relative of a top official somewhere. He (she) skims a few percent off the top. Next, the "bid manager" hires a partner company, his crony, who also takes a few percent. Often there even a third company between seller and buyer. Not only is this corrupt and non-transparent, it also injects lots and lots of delay as paper bags (or the equivalent) full of cash are transferred.
Tourism is probably a pretty good industry but stories of girls receiving 20 lashes for the crime of drinking a beer at a resort don't help much. See William Pesek's recent article on Bloomberg for additional views...they recently cancelled Beyonce's show but that's the least of their worries.
Overall 6 out of 10, IMO.

Nov 08 03:48 PM

[Jenova:]

mdmrjsds and Rokjok777 are point on the spot!

I am a Malaysian and i'm clear what is going on in Malaysia. Although Malaysia do have great potential (knowledgable labors force, luxury natural resources) to growth but because of the problems of corruption, lack of transparency, racism (unfair treatment to residents) and the over protection on Malays causing Malaysia couldn't be the highlight of Asia. Also, we do actually have political risk. In 8 March 2008, Malaysia stock market was dropped around 15% because of the Umno (politic party) lose most of their seat in parliment.

Of cause, I'm strongly confident Malaysia could be one of the fastest growth country in the world if our government could solve these problems.

Hope we can...

Nov 09 01:58 AM

[Wenger J Kh...:]

I have to correct Jenova.
There are opportunities for growth in the country, especially given the strong Oil and Gas sector and relatively undervalued property sector. The new Prime Minister, Dato Seri Najib Tun Razak has instituted key reform measures that promises less protectionism and a more free market policy.

When investing in emerging markets, one of the key risk factors is the volatility of the currency. Right now with a positive balance of trade in the current account, and a financial account that is beginning to a marked improvement after the flight to quality circa Q3 2008, the currency should at very least be able to maintain its current $:RM level of 3.3. In fact, I feel very strongly, this level should return to the 2.8-3.0 band within the next 2 years, and double digit returns are easily possible without taking too much risk.

On the political front, things are certainly on the upward trajectory. Not only is the country blessed with a forward thinking Prime Minister, it has boasts of some of the best young leaders in the region. For example, the Youth Leader for the ruling coalition is none other that The Honourable Khairy Jamaluddin, an Oxford trained economist. I believe both have shown a greater appreciation of free trade and the importance of maintaining pro investor policies.

Jenova's comments are certainly regrettable, but we do practice freedom of speech and freedom of opinion. You can find a lot of articles about our country's economy from The Rembau Times, and I welcome all views.

Have a nice day.

Nov 10 12:12 AM

[Wenger J Kh...:]

As echoed by Rokjok777, it is certainly true that the country's banking system is no longer plagued by reckless lending. Before that, I do appreciate his thoughts and views and will forward some of the positive criticism he has made to our leaders.

Our banking system has total loans amounting to about RM 750 billion (as of July 2009), which is approximately USD$ 227 billion. The breakdown of the loans disbursed are as follows :-

Household 52.45%
Manufacturing 11.93%
Wholesale trade,Retail, Hospitality 8.75%
Finance 6.24%
Construction 5.65%
Other 4.84%
Real Estate 3.07%
Transport 2.48%
Agriculture 2.25%
Education & Health 1.22%
Utilities .88%
Mining .23%

Of the 52% of loans disbursed to the housing sector, approximately 80% of that is disbursed for the purchase of homes and auto mobiles. The loans are held on the Banks Balance Sheet and as component of GDP, it is still extremely manageable. In fact, my complaint is that bankers in Malaysia are perhaps more cautious than they should be. Total non performing loans (>3 months) is only RM 33 billion (USD$10 B). The general and specific provisions made for those loans are approximately RM 25 billion.

A lot of work had been done in the period after the East Asian Economic Crisis (1997-1998) to rectify this issue. It may had been the case previously, but right now, the banking system is very strong and has the resilience to weather both regional and international economic crisis.

Nov 10 01:01 AM