The Time is Ripe for Malaysia
Malaysia enjoys long-term growth propsects but it also remains a defensive play, given the shortage of foreign investors and the assortment of government-linked companies that dominate its stock market.
The Malaysian economy has struggled so far this year but we still predict upside in 2012, especially if Prime Minister Najib Razak wins a clear majority in the upcoming elections.
The best way to tap into Malaysia is through the iShares MSCI Malaysia Index Fund (NYSE: EWM), an exchange-traded fund (ETF) in The Global Investment Strategist Long-Term Holdings Portfolio.
Najib is a pro-growth advocate, which ensures more market reforms if he wins back the majority. The ruling coalition controls 62 percent of the seats in the Malaysian Parliament. The election deadline is next April, although the Parliament will receive its new fiscal budget from Najib at the end of September.
That said, uncertainty surrounding the EU has hurt Malaysia’s economy. In April, the country’s total exports fell by 2 percent year-over-year, while exports to the EU contracted by 12 percent YoY.
On the other hand, recent economic numbers emerging from Malaysia indicate that the industrial sector remains solid. As the chart below indicates, industrial production increased by 7.6 percent YoY in May. The industrial sector accounts for 35 percent of the Malaysian economy. If industrial production remains at these levels for the rest of the second quarter, its momentum should help gross domestic product (GDP) grow by about 5 percent this year.
Source: Bloomberg
Malaysia’s long-term economic future will depend on improvements to the country’s infrastructure. The level of foreign direct investment (FDI) inflows to the development corridor of Iskandar will be an important gauge for the country’s infrastructure growth.
A three-hour drive south from Kuala Lumpur, Iskandar is set to become one of Malaysia’s most developed regions and the focal point of revitalized economic ties to nearby Singapore. Malaysian economic planners aim to make Iskandar a holiday and shopping getaway for Singaporeans, or even a place of residence for people that work in Singapore.
Consequently, Malaysian developers are very active in the region, while Singaporeans seem to be waiting on the elections before they get involved at full speed. Malaysia’s Economic Transformation Program (ETP) has resulted in strong foreign direct investment, with gross FDI inflows rising from USD1.5 billion in 1999 to USD12 billion in 2011.
Malaysia’s currency (the ringgit) is relatively cheap, helping the country enjoy a current account surplus of close to 8 percent of GDP. The country’s fiscal deficit is at a manageable 5 percent of GDP, while the total government debt to GDP remains at 54 percent, which is not worrisome.
With a 3.8 percent dividend yield, iShares MSCI Malaysia Index Fund is a buy up to USD15.
The Malaysian economy has struggled so far this year but we still predict upside in 2012, especially if Prime Minister Najib Razak wins a clear majority in the upcoming elections.
The best way to tap into Malaysia is through the iShares MSCI Malaysia Index Fund (NYSE: EWM), an exchange-traded fund (ETF) in The Global Investment Strategist Long-Term Holdings Portfolio.
Najib is a pro-growth advocate, which ensures more market reforms if he wins back the majority. The ruling coalition controls 62 percent of the seats in the Malaysian Parliament. The election deadline is next April, although the Parliament will receive its new fiscal budget from Najib at the end of September.
That said, uncertainty surrounding the EU has hurt Malaysia’s economy. In April, the country’s total exports fell by 2 percent year-over-year, while exports to the EU contracted by 12 percent YoY.
On the other hand, recent economic numbers emerging from Malaysia indicate that the industrial sector remains solid. As the chart below indicates, industrial production increased by 7.6 percent YoY in May. The industrial sector accounts for 35 percent of the Malaysian economy. If industrial production remains at these levels for the rest of the second quarter, its momentum should help gross domestic product (GDP) grow by about 5 percent this year.
Source: Bloomberg
Malaysia’s long-term economic future will depend on improvements to the country’s infrastructure. The level of foreign direct investment (FDI) inflows to the development corridor of Iskandar will be an important gauge for the country’s infrastructure growth.
A three-hour drive south from Kuala Lumpur, Iskandar is set to become one of Malaysia’s most developed regions and the focal point of revitalized economic ties to nearby Singapore. Malaysian economic planners aim to make Iskandar a holiday and shopping getaway for Singaporeans, or even a place of residence for people that work in Singapore.
Consequently, Malaysian developers are very active in the region, while Singaporeans seem to be waiting on the elections before they get involved at full speed. Malaysia’s Economic Transformation Program (ETP) has resulted in strong foreign direct investment, with gross FDI inflows rising from USD1.5 billion in 1999 to USD12 billion in 2011.
Malaysia’s currency (the ringgit) is relatively cheap, helping the country enjoy a current account surplus of close to 8 percent of GDP. The country’s fiscal deficit is at a manageable 5 percent of GDP, while the total government debt to GDP remains at 54 percent, which is not worrisome.
With a 3.8 percent dividend yield, iShares MSCI Malaysia Index Fund is a buy up to USD15.
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