“As the US-China trade war took place during 2017-2019, Malaysia’s FDI saw structural shifts by country of origin," MIDF Research said.
PETALING JAYA: Investments from the United States into Malaysia may decline if “pro-protectionism” returns to power in the upcoming presidential election in the world’s largest economy.
Instead, higher foreign direct investment (FDI) is expected to come from China and East Asia countries, said MIDF Research in a note.
MIDF Research’s “pro-protectionism” label likely refers to Donald Trump, the presumptive Republican nominee.
Looking beyond 2025, the research firm warned that the global economy is facing the risk of an escalation to the US-China trade war, depending on the US presidential poll in November 2024.
“As the US-China trade war took place during 2017-2019, Malaysia’s FDI saw structural shifts by country of origin.
“For instance, FDI from the United States dropped from 6.7% of total FDI in 2016 to 6% in 2019. FDI by China rose from 1.1% to 2.7% and Hong Kong up from 7.9% to 12.5% during the three-year period.
“However, the FDI trends shifted again especially by the United States due to the change in the country’s leadership.
“The post-pandemic period saw FDI by the United States surging to above 10% since 2022 with not much change by China and Hong Kong investors.”
In the event of an acceleration in the global trade war, Malaysia stands to benefit strongly in terms of re-exports from the potential increase of global and regional distribution hubs. The rise in re-exports as a result of the trade war has happened before.
A year after Donald Trump became the US president previously, Malaysia’s re-exports ratio hit above 20% for the first time in January 2018. The re-exports then grew by nearly 40% in full-year 2018.
“We may see re-exports activity improving above 10% for manufactured goods if global trade war is intensified,” according to MIDF Research.
Meanwhile, the research house said that data centres and the revival of external trade were key FDI supporters for Malaysia.
“We opine that the robust FDI growth in information, communications and technology is highly related to data centre and 5G rollout projects.
“Looking ahead, we foresee a stronger pick-up in export-oriented sectors such as manufacturing, mining and agriculture in the second half of 2024 amid improving global trade activities and stable global commodity prices,” it added.
It is noteworthy that in the first quarter of 2024, Malaysia’s FDI inflows rose by 5.5% year-on-year (y-o-y), while equity and fund shares went up by 2.2% y-o-y and debt instruments by 30.2% y-o-y.
By sector, more than 90% of the FDI inflows went into the services and manufacturing sectors.
Manufacturing FDI was also concentrated in just three states, considering that in 2023, about 70.9% of manufacturing projects were in Selangor, Johor and Penang.
Given the robust investment appetite, MIDF Research said Malaysia’s industrial landscape is on a promising trajectory, with significant developments across key states.
Selangor stands out with ambitious projects such as the Selangor Integrated Circuit Design Park, Selangor International Aeropark and the Green Industrial Park.
Johor is experiencing robust growth with ventures like the Johor-Shenzen Industrial Park and Eco Business Park VI.
Negri Sembilan is positioning itself for long-term success with initiatives like the SPD Tech Valley and Malaysia Vision Valley.
Also, Penang is enhancing its high-tech sector with the Penang Science Park South and Batu Kawan Industrial Park.
In Sabah and Sarawak, Sabah’s 20,000-acre International Industrial Park and Sarawak’s Bintulu Industrial Park reflect substantial regional advancements.
“These strategic developments underscore Malaysia’s dynamic and forward-looking industrial future,” it said.
