How to Invest in Malaysia's Growing Economy
Investing in Malaysia from stocks to real estate
"Saya suka berada di sini" - or "I like it here" - is a phrase that investors are using more often when referring to Malaysia. A robust economy, supportive government, educated workforce, and developed infrastructure has quietly transformed the Asia-Pacific country into an attractive investment destination for international investors around the world.
In this article, we'll take a look at the benefits and risks of investing in Malaysia, how to invest in the country's stock market, and take a brief look at its real estate industry as an alternative asset class that investors may want to consider to round out their portfolio.
Benefits & Risks of Investing in Malaysia
Malaysia has an open state-centric and newly industrialized market economy. Between 1957 and 2005, the country reported gross domestic product (GDP) growth of 6.5% on average, which has made it one of the best performing economies in the region. These growth rates have slowed down to just 1.29% between 2000 and 2015, however, as the economy matures.
According to the IMD Competitiveness Index, the Malaysian economy was the 14th most competitive market in the world and fifth among countries with a population of over 20 million, which placed it above places like Japan, Australia, and the United Kingdom. The World Bank also listed it as the sixth easiest country in the world to do business and the sixth most active country for foreign investment by FPM.
As with most emerging or frontier markets, there is an element of geopolitical risk and monetary policy risk associated with investing in Malaysia. The country's political tensions in 2008 weighed on the country, while the country has run ballooning deficits in the past that have drawn investor scrutiny. Political and electoral issues also continue to plague the country and introduce instability.
Invest in Malaysia's Stock Market
Exchange-traded funds (ETFs) represent the easiest way to invest in Malaysia. By holding a diverse basket of stocks, these securities offer instant diversification and are easily bought and sold on U.S. stock exchanges. The most popular ETF used to invest in Malaysia is the iShares MSCI Malaysia Index Fund (NYSE: EWM), which mimics the MSCI Malaysia Index.
American Depository Receipts (ADRs) represent another option for international investors looking to avoid foreign exchanges. These individual companies could be purchased as a small part of a larger portfolio. But investors should be aware that many of these ADRs are relatively illiquid and may be difficult to buy and sell at attractive prices.
Here are some of the most popular Malaysian ADRs:
- Malayan Banking Berhad (MLYBY)
- Genting Berhad (GEBHY)
- Genting Malaysia Bhd (GMALY)
- MBf Holdings Berhad (MBFBY)
- Tenaga Nasion Berhad (TNABY)
Finally, international investors can invest in the country's stock exchange - the Bursa Malaysia. With just under 1,000 listed companies, the exchange is one of the largest in Asia and offers a wide variety of investment choices. The downside is that U.S. investors must open foreign brokerage accounts and may be subject to paying foreign capital gains taxes on any profits.
Malaysian Real Estate Investment
After refocusing its efforts many years ago, Malaysia has made tourism its third largest revenue contributor. This has made real estate investment a very popular alternative form of investment for many international investors. According to the Global Property Guide, average home prices have risen nearly 50% between 2002 and 2012, while the market remains highly competitive.
Despite these favorable outcomes, there are several risks that investors should carefully consider. Government attempts to make housing more affordable has led to an oversupply at times, while there were new restrictions on foreign buying put in place during the economic crisis that began in 2008. And finally, the rental market remains very small relative to the U.S.
There are not many publicly-traded real estate trusts for investors to choose from, like in the United States, but investors can purchase property directly or invest in various property management firms.
Key Takeaways to Invest in Malaysia
- Malaysia has a very robust economy and a pro-business government that has made it an increasingly attractive investment destination for international investors.
- Malaysia's political struggles and deficits in 2008 have made some international investors tread a bit more cautiously than before.
- ETFs represent the easiest way to invest in Malaysia for most international investors, but investors can also take a look at the domestic stock exchange.
- Malaysian real estate may also be an investment option to consider, but be wary of the drawbacks before committing any capital.