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Malaysia’s overseas investment in financial services is rising. NST photo by SHARUL HAFIZ ZAM
Malaysia’s overseas investment in financial services is rising. NST photo by SHARUL HAFIZ ZAM

KUALA LUMPUR: Malaysia recorded the highest growth in outward foreign direct investments (FDI) last year in Asia, with a marked shift into financial services sector from the primary sector (coal, oil and natural gas).

The outward FDI for Malaysia grew fastest among Asian economies, at 164 per cent, according to The Asian Economic Integration Report 2017 released by the Asian Development Bank today.

The report said Malaysia and India had the prominent Asian investors in outward FDIs since the turn of the century.

While interrupted by the global financial crisis, Malaysia’s outward FDI returned to growth in 2011, increasing six per cent during 2010–2016 to US$28.7 billion.

The report said the region’s outward FDI has jumped to 33 per cent of global FDI last year, led by China, Japan and Hong Kong.

Emerging Asian investors which include India, Korea, Malaysia, Singapore and Thailand are also expanding their global presence in such areas as renewable energy, semiconductors, natural resources, information technology and food.

In terms of inward FDI, the report said the Southeast Asian region received US$101 billion in foreign investments last year, a drop from US$127 billion in the previous year.

“A drop in mergers and acquisitions (M&As) from North America, Latin America, and rest of the world, especially in the primary sector was behind the slowdown,” it added.

The Philippines enjoyed the highest inward FDI jump last year to US$7.9 billion.

Meanwhile, Southeast Asia’s share of total outward portfolio debt investment rose from 12.5 per cent in 2011 to 16.7 per cent last year as Singapore (as a financial hub) continued to grow along with investment to Indonesia and Malaysia.

East Asia remained the top source of Asia’s intra-regional portfolio debt investment in 2016.

The report highlighted that China and middle-income Asean (Indonesia, Malaysia, the Philippines and Thailand) will continue to drive the region’s trade.

Yasuyuki Sawada, who is chief economist and director general of ADB’s economic research and regional cooperation department, noted that although world trade is expected to recover this year, its growth remains weaker than income growth following further deceleration in 2016.

While FDI worldwide dropped two per cent last year, the trend of regional cooperation integration in Asia and the Pacific is gaining momentum, which provides a buffer against protectionist trade policies elsewhere.

Intra-regional FDI share also grew to 55.3 per cent in 2016 from 47.6 per cent in 2015.

While Asia’s cross-border bank claims increased to US$4.4 trillion, Asia’s international tourism receipts are increasingly sourced from other Asian economies, with more than 70 per cent of Asia’s outbound tourists traveling within the region.

The report cautioned that while banking systems in the region remain healthy, high leverage and credit growth could increase some economies’ vulnerability to tightening global financial conditions.

Credit growth in Asia had been excessive over the past 10 years as evident from high and rising bank loan-to-deposit ratios and foreign liabilities-to-foreign assets ratios in several Asian economies.

It was referring to the loan-to-deposit ratios in Cambodia, Korea, Indonesia, China, Malaysia, Singapore, Thailand, and Vietnam remain above 80 per cent with loan-to-deposit ratios.

It pointed to above 80 per cent levels in foreign liabilities-to-foreign assets ratios in Cambodia, Indonesia, Korea, Malaysia, Singapore and Thailand.

“The loan-to-deposit ratio is a measure of liquidity, and the concern is that a high ratio could imply that a country could run out of liquidity to cover unforeseen funding requirements.”

The region, it added, has more limited fiscal space to maneuver should another demand shock emerge in the future due to a weaker fiscal balance in most of the developing Asian economies.

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