KUALA LUMPUR: The recent rollout of policy changes has enhanced the government's reform credentials to restore Malaysia's status as an Asian Tiger, according to two banks which helped arranged an investor engagement session in Singapore last weekend.
The banks, CIMB Group Holdings Bhd and Singapore's UOB - together with US investment bank JP Morgan - arranged the session in conjuction with Finance Minister II Datuk Seri Amir Hamzah Azizan's two-day working visit to the republic from July 27.
Amir Hamzah and Bank Negara Malaysia governor Datuk Shaik Abdul Rasheed Abdul Ghaffour shared broad and open conversations with over 100 attendees including 88 institutional investors from 63 entities such as fund managers and sovereign wealth funds.
"The reception and responses from investors were positive. Higher optimism on Malaysia is echoed by improved data, foreign portfolio inflows and FDI while the ringgit was the strongest performing Asia FX in the second quarter (Q2) of 2024," UOB said.
"During the session, there was a strong show of commitment to carry through with further reforms at the right time, while national master plans are underway to reinvent the economy," the bank added.
CIMB said Malaysia had undertaken significant fiscal reforms. This included the retargeting of electricity subsidies, introduction of a low-value goods tax, capital gains tax on foreign source income and unlisted shares, expansion of the services tax, and rationalisation of diesel subsidies as of June 10.
Despite these measures, Malaysia's Q2 2024 gross domestic product (GDP) advance estimate grew by 5.8 per cent marking the strongest growth in six quarters.
Investments approved in the Q1 2024 grew 13 per cent to RM84 billionn. Additionally, foreign net buying of Malaysian debt securities amounted to RM5.5 billion, with 80 per cent invested in government bonds.
Bursa Malaysia's benchkmark index FBM KLCI rose by nearly 11 peer cent, making it one of the best-performing markets in the region.
The ringgit appreciated by 2.0 per cent against the US dollar and remains one of the top-performing regional currencies, with foreign market turnover increasing to about RM17 billion.
CIMB Group's unit CIMB Securities Sdn Bhd said the crystallisation of reforms and a firmer standing of Malaysia's domestic fundamentals are catalysts for its constructive outlook on Malaysian government securities (MGS) yields.
"This is alongside improving investor sentiment and potential US policy rate cuts," its economist Vincent Loo said in a report today.
The firm noted that reforms need to be accompanied by mechanisms that can manage consequences to vulnerable segments.
The impending RON95 subsidy implementation will be a litmus test, as it revealed preference for policy design that broadens public acceptance, raises reform stickiness and minimises the risk of reversals.
"This reinforces our view that RON95 price adjustments will be gradual and the impact on inflation of over 3.5 per cent and monetary policy manageable.
"Cited as a key lever to delivering subsidies in a more targeted manner, the readiness of the Central Database Hub (Padu) database, which in Phase 2 of data analysis, suggests to us that the earliest timeline for RON95 changes is the fourth quarter of 2024.
"This coincides with measures to shore up incomes – such as minimum wage adjustments and civil servant salary hikes," Loo said.
Meanwhile, UOB's unit Global Economics & Markets Research believes that Malaysia's growth prospects are gaining further momentum, underpinned by higher tourism activities, ongoing global tech upcycle, and progressive implementation of catalytic projects.
The firm said with the upbeat 2Q24 advance GDP estimate at 5.8 per cent, it is probable that the full-year 2024 growth could reach the upper end of the official forecast of 4.0 per cent to 5.0 per cent.
"We were reminded the reported 2Q24 growth is still an estimate based on supply-side (sectoral) growth at this point. With that, we will revisit our growth forecast when the final 2Q24 GDP is released on Aug 16.
"There is upside risk to our full-year GDP growth forecast of 4.6 per cent for 2024 backed by resilient household spending, improved investments, continued policy support, implementation of master plans and a recovery in trade activities," it said.
UOB also said investments are expected to expand further due to new and ongoing projects from both public and private sectors, going by higher investment approvals and stronger realisation rate of 77.2 per cent between 2021 and March 2023.
It added that higher tourist arrivals are seen as another key growth driver, whereby the government targets 27 million tourist arrivals this year, slightly more than the 26 million recorded pre-pandemic.
Malaysia, UOB said, has sound monetary and financial policy that underpins macro-economic stability and paves the way for successful reforms.
The firm reaffirmed its view for the overnight policy rate to stay at 3.00 per cent for the rest of the year.
It also said regulation for digitalisation, climate risks, Islamic and environmental, social and governance assets as well as stock exchange are essential for a sound and progressive financial sector with strong capitalisation, healthy earnings and asset quality.
"The holistic development of halal markets has also lifted Malaysia's sukuk issuance to account for 40 per cent of outstanding global sukuk as at today," it added.
On the ringgit, UOB said the local note is largely affected by global factors such as cyclicality of interest rate differentials with developed markets, global economic fluctuations and geopolitical risks.
Thus, proactive measures, sound domestic fundamentals including a persistent current account surplus and positive growth prospects provide grounds for further ringgit upside once external headwinds abate.