Over and above that, reforms and policy changes in the past year have also helped to lift the country’s ratings for the first time in six years, the investment banking group’s head of Asia-Pacific (ex-Japan/China) equity strategy Rajiv Batra said.
Rajiv, who was speaking on Squawk Box, the pre-market morning news and talk programme of CNBC International early today, said the pace of progress has come as a surprise.
He noted that the gross domestic product had expanded 4.2% in the first quarter of 2024 and earnings growth was almost 10% to 11%.
“(This) surprised us on the upside, which means we need to give credit to the country and hence we upgrade it to neutral,” he added.
Rajiv noted that the government had taken some “bold steps” in cutting subsidies.
“It’s always controversial and always very sensitive but they managed to do it,” he pointed out.
“It is also meaningful how they sold this to the population,” he added, noting that cash has been offered.
Under the diesel subsidy rationalisation scheme, those in the lower income group will receive cash handouts to defray the cost of fuel.
Businesses will continue to enjoy the subsidy to ensure that they do not raise prices of consumer goods.
Rajiv said what people should realise is that the subsidy cut of almost 25% will be diverted to productive uses in the economy.
He said the savings could be invested in literacy reskilling or to introduce the progressive wage policy on which Malaysia is trying to draw inspiration from Singapore.
Rajiv agreed that much of the upgrade is down to a governance reset in the wake of the 1MDB debacle.
He also concurred with the view that Malaysia has now achieved some closure on the issue and perceptions have changed for the better among international investors.
“We are seeing the government walk the talk,” he said.
He gave the thumbs up for reforms such as energy transition and the Madani economy budget.
“Most importantly, (there is) the desire to go ahead with the fiscal consolidation without sacrificing growth,” he said.
Malaysia is targeting a growth rate of 5% this year.
He said foreign investors’ perception on Malaysia is also changing.
For instance, he said, Malaysian equities saw an outflow of US$150 million to US$160 million (RM705 million to RM752 million) in the first quarter of 2024 but it quickly recovered and in the second quarter foreign investments were back.
From April to June, Malaysian equities saw an inflow of new investments of about US$200 million (RM941 million).
Overall, he noted, the equities markets in Asean countries have accumulatively lost about US$7 billion (RM32.9 billion) in foreign investments so far this year.
Rajiv said that foreign investors are now taking note of not just the technology story in Penang but also the investments in data centres and other infrastructure.
“In my travels, I see that people are warming up to Malaysia again,” Rajiv said.
“Yes, it is a multi-theme story revolving around data centres that everyone is talking about,” he added.
He noted that Penang has proven to be a tech hub, and Malaysia is also investing in electric vehicles, green energy and solar energy.
“Taking all these factors into account, foreign investors now see multiple sectors and ideas in play in Malaysia,” he added.
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