PETALING JAYA: The outlook for Malaysia’s investment climate in the second half of 2024 (2H24) remains positive, with experts expecting continued growth across key sectors.
Ongoing economic reforms, favourable global trends and the country’s strategic position in supply chains are set to attract further investments.
However, external risks, including global geopolitical tensions and economic uncertainties, could influence investor sentiment.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid is optimistic about Malaysia’s investment prospects, highlighting the country’s appeal as firms seek alternatives to China, driven by trade tensions among developed economies.“Malaysia seems to be a natural choice in light of the pro-business government, along with a supportive regulatory framework, decent infrastructure and the availability of a talent pool that would facilitate the investment process almost seamlessly.”
He noted that clarity in policy and fiscal reforms has already encouraged portfolio inflows.
Mohd Afzanizam sees growth potential in renewable energy (RE), cloud technology and tourism-related projects.
Similarly, OCBC Bank senior Asean economist Lavanya Venkateswaran sees continued interest in Malaysia, provided the government remains committed to its reform agenda.
“As long as the momentum is sustained, we expect investors to remain interested,” she noted, highlighting that Malaysia’s diversified export base, particularly in electrical and electronics (E&E) and machinery, offers a solid platform for future investments.
CIMB Bank Bhd head of treasury and markets research Michelle Chia echoed this sentiment, emphasising that Malaysia’s strategic location and policies position it to seize opportunities from the China+1 strategy, as well as green energy investments.
“These complement the existing investments into electronics, machinery and natural resources,” she noted.
However, economist Geoffrey Williams cautioned that much of the focus in 2H24 will be on consolidating and finalising deals.
“The main announcements have already been made,” he explained.
He highlighted external risks such as ringgit volatility, US interest rates and the geopolitical impact of the upcoming US elections.
“These are outside of Malaysia’s control,” he stated, urging the government to focus on maintaining domestic economic stability and a sustainable budget to mitigate the effects of external uncertainties.
On the upside, Malaysian Institute of Economic Research executive director Anthony Dass sees a bright future for Malaysia, particularly in sectors like E&E, data centres, RE and real estate.
He also pointed out that the political stability, underpinned by initiatives like the National Energy Transition Roadmap and the Johor-Singapore Special Economic Zone (JS-SEZ), will bring positive spillovers to the economy in the years ahead.
In the 1H24, Malaysia’s total approved investments reached RM160bil, marking an 18% year-on-year growth.
Domestic investments accounted for RM85.4bil or (53.4%), with a 19.1% increase, while foreign investments contributed RM74.6 billion (46.6%), growing by 16.7%.
The services sector attracted RM97.2bil (60.7%), growing by 14.4%, and the manufacturing sector secured RM60.1bil (37.6%), with a significant 34.1% increase.
Maybank Investment Banking Group macro research regional co-head Chua Hak Bin also emphasised the significance of the JS-SEZ in driving investments, particularly in manufacturing, logistics and RE.
He predicts property demand and values in Johor to rise, further fuelling real estate investments.
Despite the promising outlook, experts warn that global uncertainties could disrupt the investment wave.
“An escalation in the United States-China trade war, particularly if Trump wins the election, could disrupt investments and trade,” Chua added.
Bank Muamalat’s Mohd Afzanizam highlighted concerns over the global economic climate, particularly the weakness in China’s economy.
“Global investors are worried about the state of China’s economy, especially as its real estate market struggles. As the world’s second-largest economy, China’s challenges could seriously impact global demand,” he explained.
The economist noted that the upcoming US presidential election could also influence global trade and geopolitics.
Lavanya from OCBC echoed these concerns, emphasising that geopolitical factors, including the outcome of the US elections, could significantly impact Malaysia’s investment and export growth.
Domestically, she warned that if there is a lack of progress on the government’s reform agenda or disappointing announcements in Budget 2025, this could keep investors cautious.
Regarding the ringgit, while most experts expect it to remain firm or even appreciate, economist Williams offered a different perspective as he believes the appreciation of the ringgit “might have been overdone.”
“The exchange rate should be stable if possible. A steep appreciation makes exports more expensive and can cause a loss of markets.”
He illustrated this by noting that when the ringgit was at 4.80 against the US dollar, a RM10 product cost US$2.08. With the ringgit now at 4.20, that same product costs US$2.38, making it more expensive for buyers.
Conversely, exporters pricing their products in US dollars are feeling the pinch as a product that once brought in RM48 at a weaker rate now only fetches RM42 due to the strengthened local note.
Bank Muamalat’s Mohd Afzanizam predicts the dollar-ringgit rate could reach RM4 by year-end, driven by increased foreign investor confidence boosting demand for the ringgit.
Lavanya expects dollar-ringgit levels to remain around 4.17 until the end of 2024, with further appreciation likely in 2025.
Similarly, Anthony believes the ringgit has room to strengthen, estimating its fair value at 3.80 to 3.90 against the greenback.
Factors supporting a stronger ringgit include narrowing interest-rate differentials with the United States, fiscal reforms, solid foreign investment inflows, and stable economic growth and political conditions.
