KUALA LUMPUR: Malaysia's foreign direct investment (FDI) inflow outlook is expected to remain positive in the second half of 2024 due to good traction from China, Europe, the US, Japan and South Korea, said UBS Global Research.
UBS said the FDI inflow is concentrated in the electrical and electrical and electronics (E&E) space, but there is also interest in chemicals, green technology, machinery and metal fabrication.
"If Malaysia becomes a regional data centre hub, this will be a major draw for companies at the forefront of technological innovation to deepen investments in Malaysia," it said today.
UBS said Malaysia has become increasingly attractive to foreign investors due to several factors, such as the country's political stability and track record in exercising fiscal responsibility.
Malaysia's competitiveness in the E&E sector, as well as energy policies leading to net zero targets are other factors attracting investors.
"The country also has a deep talent pool with a high number of STEM graduates, numerous free trade agreements and good scores regarding ease of doing business factors.
"Localisation of FDI has been fairly successful in Malaysia. For example, the E&E ecosystem had benefitted from demand from large multinational company investments; the positive spillovers also extended to construction companies and the labour market," it said.
Meanwhile, UBS said the implementation of the global minimum tax of 15 per cent in 2025 would have a negligible impact on competing for FDI.
Although de-globalisation trends have intensified, it said with many countries seeking to reshore companies through subsidies, it would not stop large players from expanding globally.
Notwithstanding this, Malaysia has implemented a 40 per cent local content criteria, which is in line with World Trade Organisation standards.
"From a business owners' perspective, FDI into Malaysia has benefited companies greatly, especially with regard to sub-industries supporting the E&E industry, which saw a large inflow of FDI," it said.
On the trade and international relations, UBS said Malaysia is set to assume the chairmanship of Asean in 2025 which could see opportunities in improving intra trade within Asean countries which only make up 23 per cent of trade currently.
In terms of free trade agreements, the firm said Malaysia could restart negotiations with the European Union on the stalled Malaysia-European Free Trade Association (EFTA) Economic Partnership Agreement.
EFTA members include Switzerland, Norway, Iceland and Liechtenstein.