This article first appeared in Forum, The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

In a period of global uncertainty, Malaysia’s economy is demonstrating remarkable resilience and optimism. Along with the strong Q2 gross domestic product (GDP) of 5.9%, the surge in initial public offerings (IPOs) and strategic investments by government-linked investment companies (GLICs) is a clear indicator of this trend, reflecting a robust domestic push towards strengthening the nation’s economic foundations.

Malaysia’s IPO market is experiencing a resurgence, with a significant uptick in listings and funds raised. The exchange’s surpassing of the 1,600-point mark and achieving a market capitalisation of over RM2 trillion (RM8.66 trillion) are significant milestones, signalling a robust upward trajectory. This positive momentum will likely persist, driven by the pipeline of committed investments and the ongoing implementation of strategic national initiatives.

Total IPO proceeds for the first seven months of 2024 climbed 15% year on year to US$674 million, driven by improving investor sentiment. Bursa Malaysia aims to capitalise on this momentum with a target of 42 IPOs in 2024. The stock market has already witnessed a surge in listings, with palm oil producer Johor Plantations Group being the largest so far, raising RM735 million. Notably, the bourse is also attracting interest from Singaporean companies seeking a secondary listing, such as semiconductor firm UMS Holdings Ltd. This influx of new listings, coupled with increased liquidity, positions Malaysia as a burgeoning IPO hub in Southeast Asia.

The concerted efforts of the Malaysian government to revitalise the economy have been instrumental in driving investor confidence. Key initiatives such as the National Semiconductor Strategy (NSS), the New Industrial Master Plan (NIMP) 2030 and the National Energy Transition Roadmap (NETR) have positioned Malaysia as a strategic hub for high-tech industries. These blueprints outline a clear path for economic growth, attracting significant investments from both domestic and foreign players. The influx of capital from global tech giants like Google and Microsoft into data centres and cloud infrastructure further solidifies Malaysia’s status as a rising digital economy power.

Several factors have converged to drive the surge in IPOs on Bursa Malaysia. While global economic conditions undeniably influence investor sentiment, domestic catalysts have been the primary drivers of this uptrend. Malaysia’s well-established semiconductor industry, coupled with strong economic fundamentals and a business-friendly environment, has created fertile ground for IPOs. The government’s efforts to streamline the IPO process and introduce tax incentives for tech companies have further accelerated this trend.

Additionally, the global shift towards supply chain diversification, often referred to as the “China+1” strategy, has benefited Malaysia. The country’s competitive position, supported by a strengthening ringgit and robust consumer spending, has attracted significant investor interest. These factors collectively contribute to the positive momentum in the Malaysian IPO market.

Six leading GLICs have pledged a substantial RM120 billion in domestic direct investment (DDI) over the next five years. This significant commitment represents approximately 25% of the GLICs’ combined investment portfolio, underscoring its pivotal role in driving Malaysia’s economic growth.

Aligned with the nation’s strategic blueprints — the New Economy Policy, NIMP 2030 and NETR — the DDI will be channelled into priority sectors identified to propel the country’s economic transformation. Key sectors earmarked for investment include electrical and electronics (E&E), palm oil, sustainable energy, transition-related industries and pharmaceuticals. By focusing on these strategic areas, the GLICs aim to catalyse innovation, create high-value jobs and enhance Malaysia’s global competitiveness.

However, the success of DDI hinges on rigorous risk assessment and market analysis. To maximise returns and minimise risks, GLICs must prioritise emerging domestic firms with proven business models and high growth potential while avoiding non-economic influences like nepotism and political interference. While foreign direct investment (FDI) remains essential, DDI is a complementary force. By nurturing domestic champions, the country can enhance its economic resilience and reduce over-reliance on external factors.

While the Malaysian stock market is currently riding a wave of optimism, it is essential to acknowledge the potential headwinds on the horizon. The global economic landscape remains volatile with factors such as interest rate fluctuations and geopolitical tensions capable of disrupting market sentiment. A more aggressive than expected interest rate cut by the US Federal Reserve could introduce volatility into the Malaysian market.

Nevertheless, Malaysia’s proactive stance on strengthening its economic fundamentals is crucial in building resilience against such external shocks. Sustaining a strong stock market rally requires a multifaceted approach. Maintaining strong GDP growth, attracting substantial FDI and fostering a thriving job market are essential to creating a solid economic foundation. By focusing on these key indicators and implementing policies that support long-term growth, Malaysia can enhance its ability to weather economic storms and continue on its upward trajectory.

With strong consumer spending and a recovering manufacturing sector, Malaysia’s economy will likely remain strong throughout the year. Bank Negara Malaysia projects GDP growth at the upper end of its 4% to 5% estimate, which may be conservative given the current momentum. While downside risks persist — especially regarding consumer responses to the removal of the RON95 subsidy and the potential for a US recession — the economic outlook remains positive overall.

An economist and public policy thinker at IDEAS Malaysia, Doris Liew regularly observes Asean’s economic development, policy frameworks and regional and international trade dynamics

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