Is Malaysia Making A Return To The Global Investment Radar? (Part 2)

Judging by the KLCI performance, Malaysia has certainly once again returned to the global investment radar! The index grew more than 13% in the first quarter of 2007, despite suffering a major crash in Feb and March! This has made Malaysia among the best performing market in Asia, a far cry from the not too distant days where Malaysia stocks were least favoured! A major portion of this performance is due to the inflow of foreign funds, as supported by Malaysia's increased Foreign Exchange Reserves from the end December 2006 figure (USD82.5b) to mid March 2007 (USD87.3b). In fact, foreign funds started to return to Malaysia in a big way starting from the 4th quarter of 2006, as indicated by another 13% rise in the index during the same period. So, what caused Malaysia's capital markets suddenly become so highly sought? Here are some of my views and factors contributing to the course:

1. Improved corporate earnings - upside bias on the number of corporate financial results meeting or outperforming expectations. This trend has started in 2006.
   
2. Government's stimulus for private sector growth, by reducing corporate tax from 28% to 26% within 2 years.
   
3. A series of major Mergers & Acquisitions activities such as AMMB, RHB, mega plantation merger through Synergy Drive, Malaysia Oxygen takeover, Malakoff takeover, etc. This makes the Malaysia market more vibrant and exciting, and foreigner investors favor these developments instead of sleepy old yard! Indeed SIZE matters!
4. Improved performance of major Government-linked Corporations. eg., Malaysia Airlines, Maybank, Bumiputera Commerce Bank, Tenaga, MRCB, Telekom, etc
   
5. Moderate inflation rate (between 2 to 3% for 2007)
   
6. rising trend of Malaysia currency, Ringgit, and Government's support for a stronger currency
   
7. Increasing trade liberalisations and open economy as initiated by the Government
   
8. Government's pump priming initiatives through a series of construction activities under the 9th Malaysia Plan (five-year economic plan)
   
9. Malaysia's new major development area for next frontier economic growth - Iskandar Development Region (IDR), providing abundant opportunities for both local and foreign investors
10. Government's drive and incentives to make IDR a major success. eg., 100% foreign ownership, 100% foreign capital, freedom to source 100% foreign human capital, tax exemption for key services industry, etc
11. Stimulus for property markets through abolishment of Real Capital Gains Tax (RPGT)
12. Government reforms over public service delivery improvement - improve public service efficiency and effectiveness, and create a truly business-friendly environment

To continue next post....