Malaysia outlook

Malaysia’s moment in the sun

The IPOs of Felda and IHH have put the spotlight on Malaysia, but the country still has a job to attract more foreign investors.

Malaysia will almost certainly miss its lofty goal of becoming a developed nation by 2020, as even senior politicians admit, but this has nevertheless been a banner year for the country.

Two of the world’s biggest equity capital markets deals this year came from Malaysia: the initial public offerings of Felda and IHH, which raised more than $5 billion in total and have become a source of pride for local bankers and politicians.

“This is our moment in the sun,” said Tajuddin Atan, chief executive of Bursa Malaysia, at a lunch held recently in Hong Kong to promote trade with the country and spread the good news about Asean.

Atan was part of a Malaysian delegation that also included senior bankers from RHB and OSK Capital, which completed their merger two weeks ago, and Mukhriz Mahathir, the deputy minister for international trade and industry, and son of the former prime minister.

Between them, they held 353 one-on-one meetings with investors who managed a total of $360 billion of client money.

The high-profile IPOs have clearly brought a lot of attention, but most of the demand for such deals has come from domestic buyers — foreign investors are still hesitant. Indeed, Atan grumbled that many of them, especially in New York, still ask if the ringgit is convertible.

“That’s the problem when you put capital controls in place,” he said, before reiterating that Malaysia refloated its currency in 2005.

The global financial crisis has also taken its toll. The optimism that led Malaysia to declare its goal of achieving rich-country status by 2020 has subsided. It is still the official goal, but Mahathir conceded that “there are some concerns” about whether it is possible. To do so, according to the government, the economy will need to grow at an 8% clip for the next seven years.

The global financial crisis has ruined any chances of that happening. Malaysia’s economy has been growing at less than 6% since the second quarter of 2010, and the latest quarter’s numbers are pointing in the wrong direction — down to 5.2% from 5.7% in the third quarter of last year and down from the 5.6% in the previous quarter.

“Some economists say it will be delayed by three years,” admitted Mahathir. “What’s important for us now is to mitigate any factors that slow us down further — and trade is obviously a big one of these.”

Asean is key to that, and Mahathir ran through some numbers to underscore the opportunity. The region has a population of 600 million, making it twice the size of the US and half the size of China; it has an economy of $2.1 trillion; and a region-wide market capitalisation of $2 trillion.

In September, Asean launched a trading link between stock exchanges in Malaysia and Singapore, followed by Thailand in October, creating a virtual market of more than 2,200 listed companies and $1.4 trillion in combined market capitalisation.

The next big step is to establish an economic community by 2015, while a free trade agreement with the EU is also close to being signed.

Malaysia could certainly do with a trade boost. Export revenues from palm oil have been trending down during the past year, while electrical and electronic goods, the biggest export segment, have been slowing down since 2009.

Oil and gas exports have been stronger, but the overall trade contribution is not about to catapult Malaysia back to the days of double-digit growth.

For his part, Mahathir stresses that Malaysia is keen to develop trade in other areas, such as healthcare (as demonstrated by the IPO of IHH) and tourism. “Malaysia gets more tourists than Thailand,” he said.

Education is another growth area. In Johor, Malaysian schools and colleges attract students from across the border in Singapore and foreign institutions such as Marlborough College, a British public school, have built campuses in the country.

Clearly there are challenges, but Mahathir is confident that a focus on value-added industries and greater regional integration will still help Malaysia to achieve its goal of joining the 19 other rich countries in the world.

“Malaysia is just about to lift off,” he said.

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