Looking east, M’sia steps up its investment game in Asia

 

EARLY February, Prime Minister Datuk Seri Anwar Ibrahim announced the proposal of establishing the Asian Monetary Fund (AMF) to reduce the region’s dependency on the dollar as well as help countries in the region.

The AMF, which was first proposed by Japan to navigate through the 1997 Asian Financial Crisis, was never established following strong opposition from the US, and China’s reluctance to support it.

Furthermore, the Chiang Mai Initiative (CMI) was established in 2000 to address the short-term liquidity difficulties in the region and to supplement the existing international financial arrangements as well as to avoid a future recurrence of the Asian Financial Crisis.

Nevertheless, with Anwar’s proposal of forming the AMF and China’s reported support, analysts are weighing pros and cons of the idea.

“The AMF which we thought could be a buffer, we cannot have the international financial infrastructure decided by one corner of the earth.

“We will have to work with them but we hould have our own domestic regional and Asian strength not to necessarily compete but only to have a buffer zone,” Anwar said at the ‘Future of Asean’ dialogue session organised by the Malaysian-Thai Chamber of Commerce, in Bangkok, Thailand, recently.

He was quoted by Bernama as saying that there is no reason for a country like Malaysia to continue to depend on the US dollar in attracting investments into the country.

He said negotiations between Malaysia and other countries should use the currencies of both countries.

According to him, Bank Negara Malaysia has also made a proposal to pioneer the said method in matters of trade during visits to China using ringgit and renminbi.

“A more important matter is about the Asian Monetary Fund and the initial stage that I had proposed as the Finance Minister which was not well received in Asia because at that time the US dollar was very strong.

“But now with the economic strength of China, Japan and so on, I think this proposal should be negotiated at least about the Asian Monetary Fund and can utilise the ringgit and the country’s currency accordingly,” he was quoted as saying in reply to an additional question from M Kulasegaran (PH-Ipoh Barat) on whether the government will join most countries that no longer want to use the US dollar in trade transactions.

An economist viewed this move as ‘pragmatic’, in line with the current needs of Asian countries.

In an interview with Bernama, Juwai IQI global chief economist Shan Saeed was quoted as saying that now is the time for policymakers to consider setting up a new multilateral organisation that can provide and bolster development, growth and stability.

Currently, the IMF and the World Bank Group are two central institutions in the global financial system.

The IMF focuses on macroeconomic and financial stability while the World Bank concentrates on long-term economic development and poverty reduction.

However, critics have questioned US’ extraordinary influence over these two international institutions, both in terms of military and financially via the US dollar.

“The alchemy of global financial markets has changed over the last 16 years. The global economic instability and financial fragilities are getting deeper into the markets, and the ructions in markets such as equity and bonds are of a magnitude not seen for a decade.

“The global economy now stands at a critical juncture and many economies would see either slow growth or zero/ negative growth, so the question is, how will global leaders bring stability and growth to the economies?” Shan was reported as saying.

He had highlighted that many global and institutional investors are relying heavily on insights from established banks like Blackrock, JP Morgan, Bank of America, UBS, Goldman Sachs and Citibank in making strategic decisions for their future investment portfolios.

“It is very important for sophisticated and smart investors to fathom the global macro picture to fully comprehend the dots in order to make economic and financial sense,” he said.

Shan added that as global growth pivots to Asia, the Gulf Cooperation Council and Africa, Asian economies are increasingly in need of support, particularly in the areas of infrastructure, technology, education, manufacturing and e-commerce.

He noted that Asia requires an investment of about US$2 trillion in infrastructure, education (US$300 billion to US$500 billion), technology (US$3 trillion), manufacturing (US$1 trillion-US$2 trillion) and e-commerce (US$500 billion).

“Only an institution like the AMF can bolster the regions for development and growth for Asian economies.

“These investments can only come from an Asian-based institution that understands the local economies, culture and the people to support Asian economies’ outlook in terms of growth, development and stability without any strings attached,” he said.

AMF can become one of the preeminent multilateral financial institutions committed and dedicated to the growth of Asian economies, thus ushering in an era of prosperity and the upliftment of masses at the macro level, he said.

 

Asia on the mend

With the reopening of China’s economy following the end of its zero-Covid lockdown, analysts are optimistic about the recovery in the Asian region.

The Asian Development Bank (ADB) forecasts faster growth for developing economies in Asia and the Pacific this year, as the continued easing of pandemic restrictions boosts consumption, tourism, and investment.

It reasoned that China’s reopening – as it pivots away from its zero-Covid strategy – is the main factor brightening the region’s growth prospects.

Economies in Asia and the Pacific are projected to grow 4.8 per cent this year and next year, improving on the 4.2 per cent growth rate in 2022, according to its Asian Development Outlook (ADO) April 2023 report.

Excluding China, developing Asia is expected to grow 4.6 per cent this year and 5.1 per cent in 2024. The region’s inflation, meanwhile, is forecast to moderate gradually toward pre-pandemic levels, though there is considerable variation across economies.

“Developing Asia’s economies are reopening with impressive dynamism. Private consumption,

investment, and services – including, hearteningly, tourism – are reviving now that the pandemic has largely passed.

“Growth is gathering pace after showing resilience last year amid weakened demand from advanced economies, lockdowns in China, monetary policy tightening, and the Russian invasion of Ukraine.

“China’s reopening after last year’s lockdowns is brightening the outlook for both the region and the global economy,” said ADB’s chief economist Albert F Park.

“Regional growth is expected at 4.8 per cent this year and next, with South Asia expected to grow faster than other regions. Growth in East Asia and Southeast Asia is benefiting from increased domestic demand, and growth in the Pacific from returning tourists.

“Headline inflation is gradually coming down to pre-pandemic levels – we forecast the rate for developing Asia at 4.2 per cent this year and 3.3 per cent in 2024,” he added.

However, he cautioned that policy makers should nevertheless closely monitor price pressures, which remain broad-based and elevated in several economies in the region.

“An array of immediate and emerging challenges could still hold back the region’s recovery. The recent banking turmoil in Europe and the US is an indication that financial stability risks have heightened. Policy makers should stay vigilant in the post-pandemic environment of higher interest rates and debt.

“Governments must continue supporting multilateralism, and lean against the risks of global fracturing. And Asia must continue its strong regional cooperation to weather these uncertain environments,” he said.

 

 

According to ADB, most economies in developing Asia will also see better fiscal positions in 2023 after last year’s divergence.

“The uneven pace of recovery across the region resulted in fiscal balances worsening in about half of the region’s economies in 2022.

“In the PRC and Hong Kong, China, fiscal policy was used to counteract weak economic activity from Covid-19 lockdowns. In Pakistan, higher debt repayments and relief spending due to widespread flooding worsened the fiscal position.

“Fiscal balances improved in Malaysia, Indonesia, the Philippines, and Thailand as growth accelerated on robust consumer spending,” it said.

“The continued normalisation in economic activity throughout the region should improve fiscal balances in 2023.

“Even so, budget balances are expected to be below the five-year pre-pandemic average in most economies due to lower tax receipts because of incomplete recoveries and increased spending associated with continued support to cushion the impact of higher energy and food prices,” it added.

With most of developing Asia’s economies ending Covid-19 restrictions, ADB pointed out that measures to soften the pandemic’s impact should be smaller this year.

“But inflation remains high and warrants targeted fiscal measures, such as cash transfers to support those hardest hit by elevated prices. Because of this, the pace of deficit reductions should depend on the progress of disinflation and monetary stances, which are economy specific.

“The higher interest rate environment could also challenge fiscal sustainability, underscoring the need for the coordinated implementation of fiscal and monetary policy,” it cautioned.

 

 

Malaysia investments, trade within Asia continues to improve despite macro challenges

Despite on-going macro challenges, Malaysia continued to attract investments and boost its trade performance, post-pandemic.

Malaysia’s trade performance in 2022 surpassed RM2 trillion for the second consecutive year and registered the fastest growth since 1994, with exports expanding 25 per cent to RM1.55 trillion while imports breached RM1 trillion for the first time, jumping by 31.3 per cent to RM1.29 trillion.

Minister of International Trade and Industry Tengku Datuk Seri Zafrul Aziz said the trade surplus increased by 0.6 per cent to RM255 billion, representing the 25th consecutive year of trade surplus since 1998.

“In 2022, Malaysia’s trade continued to demonstrate a remarkable performance and registered another record-breaking achievement with trade, exports, imports, and trade surplus soaring to a new high,” he said in a statement.

He noted that this was “a positive reflection that the nation’s trade performance is on an upward trajectory, boosted by higher external demand and strong commodity prices.”

“In terms of markets, exports to major trading partners notably Asean, China, the US, the European Union (EU), and Japan registered a new record high,” he added.

Trade with Malaysia’s important and strategic trading partner, Asean, rose by 34 per cent to RM772 billion from the previous year, while trade with Asean accounted for 27.1 per cent of Malaysia’s total trade in 2022.

According to the Department of Statistics Malaysia (DOSM), Malaysia’s total trade, exports and imports for the first quarter (1Q) of 2023 posted increases as compared to the 1Q22.

Exports rose by 2.8 per cent to RM354.6 billion and imports with a value of RM290.2 billion, expanded by 3.7 per cent. Consequently, total trade grew by 3.2 per cent to RM644.9 billion. On the other note, trade surplus decreased by 1.0 per cent from RM65.0 billion to RM64.4 billion.

Singapore and China were the main destination countries in March 2023 with a total contribution of 28.8 per cent to Malaysia’s total exports.

 

 

It explained that exports to Singapore amounted to RM20.7 billion, representing 16.0 per cent of total exports, recording an increase of 3.1 per cent or RM615.3 million, y-o-y.

This increase was driven by higher exports of petroleum products (RM895.7 million, 34.2 per cent), iron & steel products (+RM132.3 million, 79.1 per cent) and non-metallic mineral products (RM67.4 million, 23.8 per cent) even so electrical & electronic (E&E) products fell RM611.7 million or 5.6 per cent.

China was the second highest country of destination in March 2023 with a total of RM16.7 billion, contributing 12.9 per cent to Malaysia’s total exports.

“Out of ten major countries of destination, exports to Singapore, US, Hong Kong, Indonesia, Australia and India noted a positive growth,” it said.

Malaysia’s imports in March 2023 lessened by 1.8 per cent or RM1.9 billion y-o-y after 27 months registered increases. China and Singapore remained as the two major countries of origin for Malaysia’s imports in March 2023, contributing 33.2 per cent to total imports, DOSM said.

“Global growth would likely to rebound by 2H23 with stabilisation of financial conditions as most major global central banks would have reached their peak policy interest rate objectives and inflationary momentum would likely to ease on a sustained basis.

“Exports are unlikely to collapse in 1H23. Despite the contraction in y-o-y term for the month of March, we expect a continuous stabilisation in momentum for both exports and imports, suggesting that bottoming out process in the export growth could ensue by early 2H23,” the research team at RHB Investment Bank Bhd (RHB Investment) commented in a report.

In terms of investments, Malaysia recorded RM264.6 billion in approved investments for 2022, according to the Malaysian Investment Development Authority (MIDA).

It saw that foreign direct investment (FDI) accounted for 61.7 per cent of total investments, or RM163.3 billion (US$36.9 billion). Domestic direct investment (DDI) recorded 38.3 per cent, or RM101.3 billion (US$23 billion).

The People’s Republic of China (PRC) led the way in total approved investments with RM55.4 billion (US$12.5 billion), followed by US at RM29.2 billion (US$6.6 billion), the Netherlands with RM20.4 billion (US$4.6 billion), Singapore RM13.5 billion (US$3.1 billion), and Japan RM11.4 billion (US$2.6 billion).

Furthermore, in 1Q, following Anwar’s recent trip to China, Malaysia has secured another RM170 billion investment commitments from China via 19 memorandum of understanding (MoU) signed between businesses in China and Malaysia.

China remains Malaysia’s largest trading partner for 14 consecutive years, with total trade of US$110.6 billion (RM488 billion) in 2022.

On the investment front, China was the biggest foreign direct investor in Malaysia last year, with investments amounting to US$12.5 billion (RM55.16 billion).

According to statistics from Malaysia’s Foreign Affairs Ministry, total exports to China increased 9.4 per cent to RM210.62 billion (US$47.84 billion) in 2022, while total imports from China stood at RM276.50 billion (US$62.78 billion) in the same year, or an increase of 20.7 per cent compared to the previous year.

On the regional front, Anwar said Malaysia will work closely with other Asean member states to ensure that the Asean-China Free Trade Area (ACFTA) benefits all parties involved.

He said the timely upgrade of the ACFTA will not only deepen trade and investment within the region but also broaden economic benefits with the inclusion of new sectors, namely digital economy, green economy, competition and consumer protection, as well as micro, small and medium enterprises.