Malaysia is a market I monitor closely. Yet I always come to the same conclusion: it is hard to identify a clear, compelling reason to invest aggressively – though perhaps that, in itself, may become its eventual appeal. After years of political turbulence and headline-grabbing scandals, Malaysia is enjoying a period of relative calm. But calm does not necessarily equate to growth.
Today, Malaysia is calmer and better managed than it was during the 1MDB (Malaysia Development Berhad – a Malaysian state investment fund set up in 2009 to promote economic development, which became the center of a major global financial scandal) years, with a more stable government, clearer economic policies, and far fewer headline-grabbing scandals dominating public life. Inflation is low, and the country recently finalised a 19% tariff agreement with the US, something companies were relieved to see resolved. Malaysia is also benefitting from an improvement in electronics exports, especially in semiconductors where it has long-standing manufacturing expertise.
But despite these positives, this isn’t a fast-growing economy right now. Local consumers remain under pressure, so the government has stepped in with cash support and tourism campaigns to keep spending going. Meanwhile, government debt has risen to about 66% of gross domestic product (GDP), and the budget deficit (what the country overspends each year) is still large.
However, there are areas showing real potential. One area attracting investment is Johor, the state closest to Singapore. New data centres are being built at speed. Much of this is led by Chinese companies, who are also expanding into electric vehicles and renewable energy in Malaysia. These developments help explain why Malaysia’s currency, the ringgit, has strengthened recently. However, these data-centre projects don’t always create many local jobs. They boost investment numbers, but not necessarily everyday economic activity.
Malaysia’s market remains dominated by local institutions, and valuations are not especially cheap given the low-growth environment. There aren’t a lot of buyers and sellers for stocks, so it can be harder to buy or sell shares easily, and many companies seem to be concentrating on keeping their profits steady instead of trying to grow their sales.
During my trip, I met corporates across banking, telecoms, infrastructure and utilities. Several stood out, though none quite enough to shift our investment focus more to the region.
Malaysia remains a market where stability may ultimately become its main selling point, but it is not yet offering the growth, liquidity, or valuation appeal that would justify a meaningful overweight. Foreign investors are still wary, and the domestic story – though improving – lacks a transformative catalyst.
For these reasons, our focus at HFEL will remain on gaining Malaysian economic exposure indirectly through companies in neighbouring markets that benefit from Malaysia’s supply-chain role, such as Singaporean banks and regional tech-infrastructure providers.
That said, I will continue to monitor developments. Especially the Johor-Singapore Special Economic Zone (a new area designed to boost business between Malaysia and Singapore), the semiconductor upcycle (which could mean more jobs and investment in technology), and the trajectory of data-centre investment. And I will certainly be back. Malaysia is a slow-moving story, but as long as political stability holds and capital formation continues, the opportunity set may eventually broaden.
Important information
Henderson Far East Income Limited is a Jersey fund, registered at IFC-1 The, Esplanade, St Helier JE1 4BP, Jersey, and is regulated by the Jersey Financial Services Commission.
