Malaysia's investment climate seen improving further

Private investments are likely to rebound in the second half of the year as businesses resume their capital expenditure spending



KUALA LUMPUR: The coalition government's win in the 13th General
Election will improve Malaysia's investment climate, attracting both
foreign and domestic direct investments, economists say.

Private investments are likely to rebound in the second half of the
year as businesses resume their capital expenditure (capex) spending,
which had been placed on the back burner due to their cautious outlook
in the run-up to the general elections.

Affin Investment Bank
economist Alan Tan said Sunday's election results meant that the
"investment realisation rate" from the Economic Transformation
Programme (ETP) as well as the Strategic Reform Initiatives will
continue to pick up.

"Barisan Nasional's (BN) success will help
improve the investment climate and promote both domestic direct and
foreign direct investments," Tan said.


Since the launch of the ETP, private investment has
become the engine of economic growth for Malaysia, rising sharply to
15.5 per cent of the country's gross domestic product (GDP) last year
from 12.5 per cent in 2010.

"Going forward, we believe that the BN government will put the
strategies into plans to sustain Malaysia's competitiveness and private
investment growth," he added.

JPMorgan Malaysia senior country
officer Steve Clayton was relieved that the much-awaited event was
over, saying that the long run-up had slowed significant investment
activities in Malaysia.

"There were numerous corporate deals in
the pipeline which we could not bring to the market due to the high
political risk premium before the general elections."

However,
aside from the investor fatigue from the almost two-year wait for the
polls to take place, it had not deterred the foreign investors, he
added.

"Foreign investors were the net buyer of equities and
fixed income and are still buying (post-general elections)," he said,
adding that the momentum will likely continue in the short term.

Bank of America Merrill Lynch Asean economist Dr Chua Hak Bin said the
government will likely pay greater attention to fiscal consolidation
after a string of populist handouts in the run-up to the elections over
the past year.

"We expect the government to resume cutting
fuel subsidies in the second half of the year and introduce a
consumption tax or GST (goods and services tax) in 2014."

Chua added that such fiscal commitments will likely be positive for the ringgit.

Santitarn Sathirathai of Credit Suisse Singapore, however, thinks that
the government will continue on an expansionary fiscal stance in the
first half, leaving consolidation to later.

Having been a tight
election race meant the government is unlikely to deliver budgetary
reforms, including the long- awaited introduction of the GST and hikes
in subsidised fuel prices.

The fiscal deficit is likely to be above the targeted four per cent, pushing the public debt close to the 55 per cent limit.

Sathirathai said GDP growth in the first half will moderate due to a
"perfect storm" of three negative forces, namely, weak global growth,
unfavourable commodity prices and uncertainties around the general
elections.

He is, however, optimistic about Malaysia's domestic
demand growth later in the year, saying that investments will lead
expansion in the second half as businesses resume capex spending
activities, infrastructure investments and a "people-friendlier for
longer" fiscal policy.

Fitch Ratings said it now looks towards "greater clarity" on the government's fiscal and economic policy programmes.

Andrew Colquhoun, the head of Asia-Pacific Sovereigns, said the rating
agency has highlighted that rising public debt ratios may eventually
exert negative pressure on the ratings.