Momentum in Malaysia

Malaysia is looking good. The country was hard hit by the pandemic, with the economy contracting by over 5% in 2020. The economic recovery in 2021 was muted due to Covid-19 restrictions under the government’s Movement Control Order. Like many countries, Malaysia is now loosening restrictions and will fully reopen its boarders from April 1st. While the country is not as dependent on travel and tourism as ASEAN peers Philippines and Thailand, it still makes up over 10% of GDP. Besides the economic recovery that is likely to unfold, Malaysia is more defensively positioned regarding the rise in energy prices as it is a minor energy exporter, so its current account is expected to remain in surplus. Inflation is under control at just 2.3%, and real rates are only slightly negative; monetary policy normalization should be manageable. And the Ringgit has held up well and should continue to do so as it screens as undervalued. One potential negative is politics. The government was brought down in 2021 mostly due to its mishandling of the pandemic. The next parliamentary elections are not until 2023, so there should be stability unless there are calls for an early election. Despite the positives highlighted, foreign ownership of the market is at decade lows. After underperforming MSCI EM in 2021, we expect the market to outperform this year.