HONG KONG: The bar for attracting investment in Asian emerging markets is on the rise, and Malaysia faces challenges in positioning itself as an appealing destination, according to Templeton Global Investments chief investment officer Manraj Sekhon.
The ongoing reform efforts and increased standards seen in many emerging parts of the world as reasons for this shift.
Sekhon emphasised that emerging markets in Asia are witnessing greater corporate governance, better businesses, higher growth, and varying degrees of exposure to the new economy, depending on the country.
For example, he said the likes of South Korea offers unique exposure to the new economy through e-commerce, the internet, and semiconductor businesses, while Taiwan is primarily associated with the semiconductor industry, and India is involved in various new economy businesses.
"So, investors have choice. If you have choice, then it's difficult. You really have to try very hard to attract portfolio capital. So, Malaysia has suffered from that.
"Malaysia has not had unique growth. It's not have differentiated growth, and the political uncertainty has not been helpful. So, Malaysia is not an attractive destination right now," he told Business Times.
Despite the reform agenda set by Prime Minister Datuk Seri Anwar Ibrahim, Sekhon believes that more needs to be done to make the country an attractive investment destination.
He said one potential opportunity for Malaysia is the ongoing reshoring trend, as companies seek to relocate their supply chains away from China.
Sekhon said Malaysia could benefit from this trend, but he expressed concerns about unclear and incoherent policymaking that could hinder the country's competitiveness.
"I think Malaysia still has to demonstrate that it can build a coherent long-term policy framework. The policy frameworks of 10 to 20 years ago need to be revisited for foreign direct investment.
"Additionally, there is also need to enhance infrastructure in tandem with the commitments made to attract and support foreign investment. For example, in Penang, there's a limit to how much you can do," he added.
Nevertheless, Sekhon said the recent developments had kindled optimism regarding Malaysia's prospects in the realm of investment.
He noted that the new announcement involving Malaysia and Singapore partnership on Johor Special Economic Zone last week, coupled with the ascension of the new King in January 2024, has piqued interest.
"It will be very interesting to see how quickly this commitment to Johor develops. Because Singapore will obviously benefit hugely if there is a hinterland to invest in Malaysia.
"As the new King from Johor takes over, that would also make a lot of sense to this investment. I think the evolution of this commitment will be closely watched, as it could have a positive impact on Malaysia's attractiveness to investors," he added.
Meanwhile, Franklin Templeton head of Asia Pacific Tariq Ahmad said he is optimistic about Malaysia's debt dynamics and investment potential despite recent challenges.
He noted that Malaysia's bond market currently offers attractive valuation opportunities, with the bond market providing a high real yield.
However, he acknowledged that the ringgit has faced some pressure, which has presented challenges for Bank Negara Malaysia.
On the innovation front, Ahmad said the positive developments in Malaysia, particularly in terms of investment appetite toward private markets.
He added that the government's focus on food security has driven interest in tech-driven investments.
Discussing the retail market, Ahmad said the industry has experienced some challenges and muted activity, particularly following the price action in equities and fixed income markets in the past year.
"I think investors have been on the sidelines, where I think investments have been more on the front end on cash instruments. So, the mutual fund industry, across Asia Pacific has come down quite a bit, and Malaysia was no different.
"We are trying to engage with investors and encourage them to consider returning to investing and adopting a longer-term perspective," he said.
Given the prevailing low-interest-rate environment, Ahmad acknowledged that the investment paradigm has shifted, and investors need to adapt to the "new norm".
He noted that it is essential to help clients understand and navigate this new investment landscape, reminiscent of the pre-global financial crisis (GFC) investment cycles.
ClearBridge managing director and portfolio manager Charles Hamieh urged Asian countries to prioritise infrastructure investments, as they have a transformative impact, even with the simplest infrastructure improvements in emerging markets like Malaysia.
He pointed out that investment in clean water, reliable electricity, and well-maintained roads, including toll roads, has a profound economic impact and enhances the standard of living for the people.
As such, Hamieh said infrastructure investments, particularly in Malaysia, offer unique features due to regulation or concession agreements, market structures that limit competition, and stable revenue growth that outpaces inflation.
"Infrastructure is an essential service. So, whether the economy is doing well or poorly, the assets still getting used. And that means you have very resilient cash flows.
"They are resilient cash flow profile means you have very strong dividends and dividend growth, which way inflation is passed through," he noted.
Hamieh also said for Malaysian investors, accessing global opportunities in the infrastructure asset class is not only beneficial for diversification but also aligns with decarbonisation efforts.
He believes that Malaysian investors can benefit significantly from the strengths of this asset class, especially considering current valuations and the global economic environment.