Malaysian economy offers bright spot amid global slump

While the rest of the world was worrying about Europe in 2011, Southeast Asian stock markets quietly booked respectable gains, led by the Philippines, Indonesia and Malaysia.

Investors will undoubtedly continue to favour China and India for some time, but there are now also signs that they are exploring opportunities elsewhere in Asia, and particularly in Southeast Asia.

The outlook is generally positive throughout the region, but Credit Suisse economist Kun Lung Wu wrote in a report this month that Malaysia is likely to continue outperforming its neighbours during the next couple of quarters — assuming that a break-up of the eurozone can be avoided, or least postponed beyond 2012.

“Malaysia’s private consumption growth has been amongst the strongest in the region, and we expect it to remain robust in 2012, supported by high energy and palm oil prices, government cash transfers, and pay rises and bonus payments for civil servants and pensioners announced in the Budget 2012,” said Wu.

Malaysia’s economy likely grew 5.2% in 2011 and is projected to grow 5.1% in 2012, according to the latest IMF estimate. China is expected to grow 9% this year, a slight slow-down from the projected 9.5% growth for 2011, while India is likely to grow 7.5% in 2012, compared to an estimated 7.8% growth last year, according to the IMF.

Tou Chen Chang, Southeast Asia head of global banking at HSBC, said the bank’s house view is positive for Malaysia and that the level of investment banking activity there will be similar to 2011.

“The government is investing significantly in infrastructure and many corporates in Malaysia enjoy strong balance sheets and generate strong earnings,” Chang, who is based in Singapore, told FinanceAsia in a telephone interview.

In mergers and acquisitions, he cited three sectors that he expects will continue to be active: financial services, such as banks and insurance companies; resources and energy, which includes agricultural commodities; and real estate.

“There are many positive attributes to companies in Malaysia, which should attract investor attention,” said Chang. “Unfortunately though, many Malaysian stocks are not as liquid as those in other markets such as Hong Kong or Singapore. So for investors who want to deploy capital, it’s going to take them more time to accumulate meaningful investments.”

Still, despite Malaysia’s strong economic fundamentals, observers in the region agree that global market sentiment will play a bigger role in determining whether investors take heed.

During 2011, when the crisis in Europe dogged financial markets, equity capital markets activity in Southeast Asia totalled just $18.6 billion, the lowest figure since 2008, when it slumped to $14.1 billion, according to Dealogic. The volume of initial public offerings in the region dropped 62% in 2011 to $6.6 billion, only marginally better than the $6.1 billion raised in 2009, according to the same data.

“Although it has a strong domestic economy, Malaysia is still not decoupled from the rest of the world. If global sentiment is poor, then that is going to slow down activity in Malaysia,” Chang said.

So far this year, the Philippine Stock Exchange Index, which booked a 4% rise last year, is up about 8%, while the Jakarta Composite Index, which rose about 3% in 2011, has gained about 4%. The FTSE Bursa Malaysia KLCI Index, which inched up about 1% last year, is almost unchanged this year.

In contrast, the FTSE 100 Index fell nearly 6% last year, while stocks in Hong Kong and Japan lost about 20%.