Why would I write about a country whose GDP growth has been shrinking since its high of 6.5% 2 years ago, with the first quarter 2016 coming in at 4.2%? I know that the dismal economic news and high levels of systematic corruption, especially around the 1MDB Bank, is splattered all over the internet. But under all that there is still a dynamic economy waiting for the right time to break out.
The significant slowdown is due to a substantial decline in exports and a reduction in investment; however, FDI picked up significantly in the first quarter of 2016, dramatically higher than a year ago. The highest amount of FDI, just over $2 billion between January and April of 2016, came from China who has overtaken the U.S. as the number one exporter of “greenfield capital investment.” In addition, the government has embarked on massive infrastructure projects which will also help boost GDP growth.
Economists believe that the second half of 2016 is when the economy will begin to gradually improve, even though oil revenues currently are minimal. It would, however, behoove the government to reduce onerous regulations and make economic conditions conducive to multinational investment. Private investment is always better than sovereign investment. Together with higher inflows of FDI, consumer confidence has risen to its highest level from a multi-year low at the end of 2015.
For all these reasons, I consider the Malaysian economy worthy enough to bring to the attention of retail investors. Yes, there is a Malaysian focused ETF available, the iShares MSCI Malaysia ETF (EWM), but it has lagged the Kuala Lampur benchmark index (FBMKLCI:IND) over a one year period. If I were investing in that economy, I would consider four companies that have grown substantially.
The first is Dutch Lady Milk Industries (DLM:MK), a consumer products company. The other three are all diversified holding companies involved in manufacturing: Comintel Corp (CMT:MK), which also has an engineering component; Scientex (SCI:MK), which also has property investments; and United U-Li Corp (UULI:MK).
All of these companies have had good one year returns, and I believe as the Malaysian economy accelerates in the latter part of 2016 so will the returns of these companies. I only hope that the government takes the right steps to attract more global companies.
Site Selection magazine has named Malaysia as the number seven investment destination in Asia, but it would be good to see Malaysia become a global manufacturing hub and have multinationals join the likes of Honeywell and Spirit Aero Systems who have manufacturing facilities there. Malaysia has all the right components; all they lack is competent leadership.