Thursday, 24 January 2013

Is Malaysia A Safe Emerging Market Investment?

I chanced upon an absolutely absorbing article about investing in Malaysia. Why did I find it riveting? Because when arguing his case the author first gave a sort of a Malaysia-In-A-Nutshell briefing. Mind you, it was not the sort of briefing you find in your pliant local dailies (if you could call it that). It was written in tell-it-like-it-is and in-your-face style some of you might find a wee bit uncomfortable. I have reproduced the kinder bits here. I have also provided the link to the rest of the article.

The Long-term Case for Investing in Malaysia and the iShares MSCI Malaysia Index Fund ETF
In spite of the Malay dilemma and the uncertainty about upcoming elections aside, there are a number of compelling reasons why Malaysia and the iShares MSCI Malaysia Index Fund ETF would be (in theory...) good long-term emerging market bets for investors. Just consider the following:

•    Location, Location, Location. Located in the heart of Southeast Asia, Malaysia is also part of an industrial corridor stretching into Indonesia. So while low end manufacturing or assembly work gets done on Indonesia's Batam or Bintan Islands and high-end knowledge or headquarters work is done in Singapore, Malaysia gets the work somewhere in the middle.
•    Not on the Ring of Fire but Rich in Natural Resources. Unlike Indonesia, the Philippines, Taiwan and Japan, Malaysia is safely away from the ring of fire - although the 2004 tsunami did cause some minor damage. However and like neighboring Indonesia, Malaysia has rich deposits of both natural and renewable resources like oil, palm oil, rare earth minerals, rubber and tin.
•    Cheaper To Invest or Live in Than Singapore. Kuala Lumpur is well served by regional airlines and it can potentially be cheaper for expats and professionals to live or base themselves and their businesses in than Singapore. That has encouraged some foreign companies to have their regional headquarters there. However and as a Muslim country, many expats would still choose Bangkok or Singapore for a regional headquarters over Kuala Lumpur.

•    Respectable Economic Growth. For 2012, Malaysia likely had around 5% or so economic growth and will likely have around 5% or so economic growth again this year, but that figure could rise if things start to improve both in China (the country's largest trading partner) and in the United States - unless there is a big hangover when the pre-election spending stops.
•    A Sort of Hot Stock Market. Malaysia's stock market gave a sub-par performance of around 10% growth for 2012 versus 20% to 40% growth for some other emerging market stock markets. However, Malaysia was a global hotspot for IPOs last year in part due to strong local demand plus the participation of government pension and asset management firms in buying IPO shares or tranches.
•    The Middle East Connection. Since Malaysia is a more liberal Muslim country, Kuala Lumpur is filled with tourists and students from the Middle East - helping to fuel the real estate market. In addition, Malaysia is also trying to position itself as an Islamic banking and finance hub.
•    Penang is a Major Electronics Manufacturing Hub. The island of Penang has long been an electronics manufacturing hub with a who's who of tech names like Agilent Technologies, Altera, AMD, Bose Corp, Hitachi, Intel, Motorola, Plexus and Seagate having manufacturing operations there. However and with China becoming more expensive along with the 2011 earthquake/nuclear meltdown in Japan and floods in Thailand, disaster free Penang is on the radar map for further technology investments plus Chief Minister Lim Guan Eng is making it easy for foreign investors to set up and expand their operations there.
•    Shared Services Centers or Outsourcing Operations Are Setting Up. Thanks to a large English and Chinese speaking professional class, Malaysia can make more sense than the Philippines for shared service centers (e.g. corporate IT, accounting or finance functions) that must handle work for China or for the whole region or even globally.
•    The Kuala Lumpur Subway. Anyone who has recently visited Kuala Lumpur may have noticed infrastructure construction everywhere as a Singapore style subway is being built to reduce traffic congestion. Construction of the subway will also trigger a mini-real estate boom as property near future subway stations will increase in value and be further developed in the coming years.
•    Stable Currency. Malaysia allows the ringgit to operate in a managed float against several major currencies, meaning it's more stable than free floating emerging market currencies that can suddenly appreciate or depreciate and hurt exports.
•    Stable Monarchy with No Coups or Insurgencies. Unlike Thailand which could experience a crisis after the current king dies, Malaysia's largely ceremonial monarch is elected every five years by the country's nine sultans. Moreover and unlike Thailand and the Philippines which have had repeated coups or coup attempts, there have been no coups or coup attempts in Malaysia and there are no ongoing insurgencies.

Finally, it's worth saying that Barisan Nasional and former Prime Minister Mahathir bin Mohamad do deserve some of the credit for the success Malaysia has had since independence or at least for not completely screwing things up (like what Marcos did in the Philippines) nor have there been serious race riots since 1969 (as what has repeatedly happened in Indonesia against the Chinese there - and often with government collusion). In part, the latter is due to the media (which is not free from government influence) and reporters who will go to great lengths to discover the occupation of those involved in a crime or incident to avoid printing their name (which tells you their race) or race.

Likewise and unlike the Americans who could not wait to get out of the Philippines (leaving behind a mess) or the Dutch who were quickly booted out of Indonesia (also leaving behind somewhat of a mess) or the French who tried to desperately clink onto Indochina long after their time had passed (and ultimately leaving behind a mess that Americans made an even bigger mess of), the British left their former Malay Federation colonies in an orderly fashion after largely dealing with the Malayan Emergency. In other words, history has dealt Malaysia a good hand to play.

The rest of this article can be found here.

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