Malaysia Increasingly Attractive To Foreign Investors - UBS Global Research

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, said UBS Global Research.

UBS said Malaysia's competitiveness in the electrical and electronics (E&E) sector, as well as energy policies leading to net zero targets are other factors attracting investors.

In a note, its analyst, Nicole Goh, said 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 foreign direct investment (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,” she added.

Goh opined the implementation of the global minimum tax of 15% in 2025 would have a negligible impact on competing for FDI.

She noted that although de-globalisation trends have intensified, 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% 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,” she said.

Goh added that the outlook for FDI inflows in the second half of 2024 is positive, with good traction from China, Europe, the US, Japan, and South Korea.

She noted that the FDI inflow was concentrated in the E&E space, but there is also interest in chemicals, green technology, machinery, and metal fabrication.

Apart from E&E, Goh said green technology, machinery, and metal fabrication were also sectors of interest, and there remained strong interest in data centre investments.

“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,” she said.

Goh said with Malaysia assuming the chairmanship of ASEAN in 2025, there could be opportunities to improve intra-trade within ASEAN countries, which only make up 23% of the bloc's current trade.

“In terms of free trade agreements, Malaysia could restart negotiations with the European Union on the stalled Malaysia-European Free Trade Association's (EFTA) Economic Partnership Agreement, which is an economic partnership agreement between Malaysia and EFTA members including Switzerland, Norway, Iceland and Liechtenstein,” she added.