Growth factors favour Malaysia - My Article which was published @ NST; 2nd Sept 2011

I wrote an article which was published in the News Straits Times on 2nd September 2011 (also published on their website: http://www.nst.com.my/nst/articles/18ECO/Article), under the 'Letters' column.

 

The article is reproduced herewith for your reading pleasure: 

Growth factors favour Malaysia

In the face of global uncertainties, a question in the minds of local investors, business circles and market players would be: how much will we be impacted?

If one were to postulate that the recent events in the United States, regarding the raising of the debt ceiling and the downgrade of the debt rating from AAA to AA+, would have minimal negative impact on markets in Malaysia, the statement would be subject to debate. Likewise, the statement that an imminent threat of stagflation encompassing the eurozone would not have much bearing on investment or stock market sentiments here would also be equally debatable.

The Kuala Lumpur Composite Index recently lost momentum, albeit to a lesser extent than its counterparts in Asia, in reaction to the negative events in the US and eurozone.

Malaysia has insulation against such uncertainties. Allow me to cite substantiating points.

The New Economic Model and Economic Transformation Programme serve as development efforts to sustain continuous growth in line with the drive for high-income nation status by 2020.

Notwithstanding doubts cast by some quarters on the efficacy of implementation by the government, about half of the outlined 131 entry point projects have taken off.

To reassure public and investor' confidence that the government is bent on boosting the country's competitiveness, six strategic reform initiatives have been identified for roll out.

They are public finance reform, government's role in business, human capital development, public service delivery, international standards and liberalisation, and Bumiputera small- and medium-scale enterprises.



The Global Peace Index ranked Malaysia as the most peaceful coun try in Southeast Asia, fourth safest in Asia Pacific, and 19th safest and peaceful out of 153 countries. This should paint a positive scene for foreign investments.



Foreign direct investment (FDI) appears on track to exceed US$10 billion (RM30 billion) this year.

The first quarter scored US$3.7 billion. Last year's total FDI was US$9.1 billion while 2009 recorded a low US$1.4 billion. We can see a revival in FDI.



The ringgit outperforms the dollar. The US credit downgrade is expected to push down the dollar's value further.

Analysts predict the ringgit-dollar exchange rate to fall to around 2.75 by the end of next year. Supported by favourable interest rate differentials, liquidity inflow into our country could be strong.



Foreign investors seek safer alternatives. Attraction is being drawn to Asia (except Japan), including Malaysia, because of the region's healthy economic fundamentals.

More inflow into Malaysia will, in turn, strengthen the ringgit, and pave the way for favourable financial markets.



The first half of this year showed a surge of interest in corporate bonds, with 12 per cent growth.

Sixty-eight per cent of the RM31.2 billion bonds issued up to June were from new issuances. The strong increase in issuances depicts the corporate bond market as a sought-after avenue for funding.



Large-cap Japanese companies with substantial cash reserves are keen on buying assets or mergers and acquisitions in Asia, including Malaysia.

The Edge magazine, in its Aug 1 issue, wrote: "Japanese firms are most aggressive in Malaysia. They have also been the top foreign acquirers here over the last 12 months, accounting for 34.5 per cent of foreign acquisition deals valued at about US$2.07 billion, according to data extracted from Bloomberg."

One of the reasons cited is the operating cost in Malaysia that is still lower than the rest of the region because of subsidies and good management.





One aspect commonly concurred by analysts is that Asia will be the key driver for economic growth over the next two decades.

China is set to overtake the US as the largest economy by then.

In 2030, the Asian giant is predicted to constitute about a quarter of the global gross domestic product while the US and eurozone will lag behind.

Malaysia, together with its Asean members, has an intertwined relationship with China as a result of trade agreements and memorandums of understanding.

Malaysia also has economic ties with the other big brothers in Asia. Malaysia and Asean will be interdependent with the bigger Asian nations as far as the economy is concerned. In short, if China and Asia do well, Malaysia will, too.



As for the near term, analysts remain bullish on local equities in anticipation of the next general election being held by the end of the year.

They say there will be a run-up in the local stock market before the polls.





JIMMY S.T. FOKKuala Lumpur