Loosely translated, ‘Malaysia Boleh’ stands for ‘Malaysians can do it!’. This phrase is now more apt than ever as the development scandal that engulfed Prime Minister Najib Razak in 2015 has left Malaysian equities unloved and under-owned ever since. This situation was exacerbated by the plunge in the oil price – even though crude and related goods account for just 10% of exports.
Indeed the global uplift in commodity prices has been one of the most important drivers behind Malaysia’s recovery, particularly as all of Malaysia’s key exports have recovered in tandem. This can be shown through the graph below, which highlights the much sounder economic base in Malaysia in 2017.
Malaysia: commodity prices & commodity exports (% YoY)
Source: Maybank, as at 9 May 2017.
What else has boosted the recovery?
The first step towards this took place in March last year, as Malaysian development company 1MDB’s power assets were sold to a Chinese buyer, CGN Power, finally putting the saga to rest. At the same time, Malaysia and China have forged a much better relationship which is beneficial to both trade and investment. This improving backdrop can also be highlighted by the renewed pick-up in tourist arrivals, with visitors contributing a record RM82.1 billion to the economy in 2016.
Tourism boosted the economy in 2016
Source: Tourism Malaysia, as at 9 May 2017.
Malaysia’s postitive economic backdrop has been further bolstered by an increase in both investment and domestic consumption, giving rise to 4.5% real GDP growth in the fourth quarter of last year. Following a three year plateau, corporate earnings have also started to surprise on the upside. Importantly for us, the Bursa Malaysia is also cheap, trading at one standard deviation below its 5 year average. This is why we have recently increased our exposure to Malaysia – in particular to the financials and consumer spaces.
The value of investments may fall as well as rise and investors may not get back the amount invested.
This information is for professional advisers only. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and are subject to change at any time without notice. The contents of this article are not intended as investment advice.
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CLI00772 Expiry on 17/05/2018