Malaysia started 2023 on a more resilient footing compared to prior years. The recently concluded general election has given a new leaf for the country as competing, decades-old political parties have set aside their differences to form a unity government. We expect stability in the current ruling government and are optimistic for continuous positive reforms, which bodes well for the long-term outlook.
China, which is Malaysia’s largest trading partner, has dismantled its Zero-COVID policy, and the swift reopening of its economy will help to ease supply chain issues and normalise regional economic activity. This may partially offset the anticipated recession in the US and EU.
We believe Malaysia’s neutral status in the ongoing global trade tensions is a golden opportunity for it to capture a bigger slice of the pie. Specifically it is well placed to benefit from a “China Plus One” (C+1) strategy in the electrical and electronic (E&E) industry. E&E in Malaysia has an established ecosystem of ancillary industries, supported by a pool of talent with multilingual capability. We are witnessing semiconductor companies in Malaysia expanding their products and services portfolio, putting great efforts to move up the value chain and moving towards industry 4.0 direction.
In the near term, listed companies in Malaysia are cautious due to the potential impact from a recession in the US and European Union (EU). We are still expecting decent growth in Malaysian core corporate earnings, albeit at slower pace than last year. Bottlenecks, including supply chain troubles and lack of foreign workers, are easing.
Investors are reacting positively to China’s reopening and the potential improvement in global growth prospects in the second half of the year. That said, we are aware of the potential setbacks in Chinese growth as COVID-19 infections rise across the country.
Article Attribute to Edward Pang, Vice President/Portfolio Manager, Franklin Templeton Emerging Markets Equity
