Total investment approvals in Malaysia expected to hit 195b ringgit: UOB

The biggest exodus of overseas investors from Malaysian equities since 2015 is spurring bets for a strong rebound in the Asian laggard.
SEPTEMBER 03, 2019 - 4:51 PM

Overall investment approvals in Malaysia rose 7.6 per cent year-on-year to 92 billion ringgit in 1H19, according to economists from UOB.

Investments were led by approvals in services, manufacturing and the primary sector, which made up 60 per cent, 36 per cent and 4 per cent of the total respectively. Additionally, the value of investments in those sectors came in at 55 billion ringgit, 33.2 billion ringgit and 3.9 billion ringgit  respectively.

In the services sector, the top five sub-sectors were real estate, global establishments, distributive trade, utilities and financial services.

Out of the five, investments approvals in financial services and real estate declined on an annual basis, with investments in financial services declining 54.1 per cent year-on-year to 2.8 billion ringgit while investments in real estate dropped 35.1 per cent year-on-year to 18.5 billion ringgit.

For the other three sectors, investment approvals  in distributive trade increased the most, shooting up 272.1 per cent year-on-year to 10.2 billion ringgit . Investment approvals in global establishments and utilities increased 241.7 and 29.8 per cent year-on-year to 11.6 billion ringgit and 5.9 billion ringgit respectively.

In the manufacturing sector, the top five foreign sources were from the US, China, Singapore, Japan and the British Virgin Islands, with investment approvals from those areas hitting 11.7 billion ringgit , 4.8 billion ringgit , 3.2 billion ringgit , 2.1 billion ringgit  and 1.4 billion ringgit respectively.

Key projects include an expansion project by a Chinese company that produce monocrystalline solar cell in Kuching, Sarawak; two expansion projects by American semiconductor firms; and a new project by an American power supply manufacturer.

Surging foreign manufacturing investments, which increased 80.4 per cent year-on-year to 25.1 billion ringgit, coupled with rising interest from the US, signalled that Malaysia was possibly benefiting from the diversion in trade supply chain as a result of the ongoing

US-China trade disputes. Economists in particular pointed to the electrical and electronics and commodity sectors as key areas where Malaysia was seen to be benefiting in.

This is premised on Malaysia’s stable underlying fundamentals and relative strengths including its strategic geographical location, well-established infrastructure, skilled multilingual workforce, and government’s targeted incentives.

On the other hand, domestic investment approvals fell 29.6 per cent year-on-year to 42.5 billion ringgit , making up 46.2 per cent of the total investment approvals in Malaysia.

The primary sector contributed 3.9 billion ringgit or 4.2 per cent of total approved investment in 1H19, led by the mining sub-sector, where investment approvals totalling 3.6 billion ringgit. Approved investment in the agriculture sub-sector recorded 25.6 per cent year-on-year growth to 48.6 million ringgit, while plantation and commodities sub-sector attracted 257.3 million ringgit in approved investment.

Economists expect total investment approvals to be around 195 billion ringgit  this year, down from 204.4 billion ringgit in 2018, as global growth prospects have turned more downbeat following the recent escalation of trade tensions with potential for further retaliations by both the US and China.

Economists also project total gross foreign direct investments (FDI) of 130 billion ringgit to 140 billion ringgit for this year, compared with 144.2 billion ringgit in 2018, on the basis that approved investments will be realised in the next 12-18 months.

The government continues to focus on implementing institutional reforms with progress in areas of anti-corruption, political governance, and enforcement agencies. Several initiatives are underway to attract top multinational companies to invest in Malaysia including a “special channel” led by the Ministry of Finance to facilitate more investments from China. A one-stop centre will also be established to facilitate the approval of applications from foreign entrepreneurs to set up a business or invest in Malaysia.