Malaysia: Respecting History, Embracing the Future
This week, our Malaysia office goes into full operation. We celebrated this significant milestone by having a dinner, and hosting over a hundred guests. It was a lovely evening, and I was honored to be in the presence of many dignitaries and key clients. I was also able to share with the audience my perspectives on emerging markets investment, which is significant and growing rapidly. I would say it appears to be a bull market now.
More money will be directed into these markets when investors realize that they may be able to buy good value stocks at reasonable prices with relatively lower risk, compared to developed markets. As an emerging market, Malaysia presents itself as a very attractive investment destination today. The Malaysian consumer and commodity stocks are attractive and interesting. I am expecting a domestic GDP growth of 6% this year. More importantly, I’m looking forward to being directly involved in managing Shariah-compliant strategies, which aim to be fully compliant with the principles of Islam. Our team is very familiar with Shariah-type investments as we have been investing in Pakistan, a Muslim country, since 1993.
The principles of Shariah investing are very much in line with equity investing and particularly ethical equity investing. The demand is growing for Shariah-compliant products for the increasing number of Islamic investors around the world – particularly from the Middle East. Malaysia serves as a good platform to engage this group of investors, many of whom cannot invest in non-Shariah compliant products.
Why Malaysia? Firstly, the Malaysian market supports the largest number of Shariah funds in the world. Secondly, Malaysia–based clients are more open to global Shariah investments. There is a lot of money and growth in this market, which is why our team is very excited to be managing Shariah mandates after being awarded one of five Islamic Asset Management Licenses early this year.
Malaysia has a population of 27 million. The medium-term growth outlook looks steadily positive at 5.3% in 2011 and 5.6% in 2012. There are reforms underway by Malaysian Prime Minister Najib Razak’s administration, such as the “New Economic Model” which pushes towards greater liberalization to facilitate a more market-oriented economy. He is indeed moving Malaysia in the right direction and the country is back on investors’ radar screen as a result of these efforts.
My very first visit to Malaysia was in the 1960s. I went to the idyllic island of Penang, with nice beaches and well-preserved heritage buildings in George Town, which were added to the UNESCO World Heritage (Cultural) list a short while ago. It was quaint and charming. It felt like we had stepped back in time, with trishaws, street hawkers and peddlers selling intricate handicrafts and souvenirs. The night markets and food was amazing. They say you can tell a lot about the country by its cuisine. It was certainly true for this wonderful island.
There has been a sea change in the country’s development, since that time — particularly in infrastructure such as the North-South Highway. When we first invested in Malaysia in 1987, it was essentially a plantation economy, with rubber and palm oil as the mainstays of agriculture, in addition to tin mining. Today, the fortunes made in palm oil, rubber and tin have been transformed into large industrial and trading companies. The long-term outlook remains positive and the economy remains resilient. They are the result of stable macroeconomic fundamentals, sound financial sector, flexible fiscal and monetary policies, continued demand of natural resources and sustained domestic demand.
Malaysia has traditionally been viewed as a defensive market, which works remarkably well for the country. Recently, the stock market has been posting excellent performance, outperforming the emerging market index. This reflects an asset reflation angle as the previously undervalued Malaysian Ringgit (MYR) started to rise against the US Dollar. We believe the Ringgit is undervalued and is likely to continue appreciating.
It is also interesting to note that recently, FTSE moved Malaysia from the ranks of a “secondary” to an “advanced” emerging market. The next stage is that of a “developed” market. These are all positive signs that are indicative of good infrastructure and governance. We’ve seen the Malaysian market cap grow tremendously. Back in 1987, it was at USD 18.5 billion. Currently, it is a staggering USD 334.8 billion. I am very confident about the country’s ambitions to become an Islamic financial hub, and a centre for managing Shariah-type investments.
 Source: Cerulli Report 2008.
 Source: World Bank, World Development Indicators, updated Oct 2, 2010.
 Source: World Bank, Malaysia Economic Monitor, as of April 2010.
 Source: FTSE Global Equity Index Series, Country Classification, updated September 2010.
 Source: S&P Factbook, as of end 1987.
 Source: S&P EMDB, as of end Aug 2010.