Speaker 1: election fever is in full swing in Malaysia as it
Speaker 1: prepares to head to the polls on november 19th, one
Speaker 1: of the hot button, economic issues and how will the
Speaker 1: outcome of the vote affect investor confidence. I'm Sona Ramesh
Speaker 1: from the management team. This is five things you need
Speaker 1: to know about the Malaysian elections joining me today.
Speaker 1: Ser Jaime Elia's chief economist at Maybank Investment Banking group,
Speaker 1: kevin chang, senior research officer at the ISIS use of
Speaker 1: ISHA Institute in ceo of click through Malaysia. Now that's
Speaker 1: a digital consultancy in Kuala Lumpur. Let's start off with
Speaker 1: one of the key issues on voters minds as Malaysia
Speaker 1: prepares to vote.
Speaker 2: It's interesting because if you see Malaysia and especially from abroad,
Speaker 2: it seems a lot of issues concerning race, religion in Malaysia.
Speaker 2: But actually, if you look at the survey done by
Speaker 2: medical center, which is arguably the most reputable polling agency Malaysia,
Speaker 2: actually the biggest issue in Malaysia among the voters actually
Speaker 2: economic concerns. And this probably is the most important factor
Speaker 2: double or three
Speaker 2: compared to what respondents mentioned as being a political instability
Speaker 2: or even like race religion issue. So in other words,
Speaker 2: economic concerns is, I would say the universal issue that
Speaker 2: all Malaysians across all ethnic and racial groups are thinking
Speaker 2: about rather than even political instability, which actually don't factor
Speaker 2: so much into the everyday life of ordinary Malaysians. It
Speaker 2: depends on which group of voters
Speaker 2: or urban, lower income and rural households is pretty much
Speaker 2: the common folks, socio economic concerns and issues like inflation
Speaker 2: cost of living income, basic infrastructure, education, health care, but
Speaker 2: at the same time, this election is about youth
Speaker 2: Or young voters given the lowering of the eligible voting
Speaker 2: age to 18 years from 21 years old. So for
Speaker 2: this group of voters, I presume it's about their future
Speaker 2: job security, better pay affordable housing as well as aspects
Speaker 2: of quality of life and sustainable development like equality, inclusivity
Speaker 2: and environment. The other key voting segment is the urban
Speaker 2: high end
Speaker 2: groups while sipping their coffees and dining at posh places
Speaker 2: like era. It will be governance, corruption, integrity, democratic and
Speaker 2: institutional reforms. The stuff that you can afford to ponder
Speaker 2: and demand when you don't have to worry about income jobs, inflation,
Speaker 2: putting food on the
Speaker 1: table. Now, according to a recent World Bank report, there's
Speaker 1: no easy fix for Malaysia's economic challenges. So what do
Speaker 1: you think are the biggest red flags ahead?
Speaker 2: The key thing that's mentioned is that Malaysia is facing
Speaker 2: structural issues such as declining FBI. Over the last 10
Speaker 2: to 15 years. Of course, there was a search in
Speaker 2: FBI 2021 partly because of the trade wars between us
Speaker 2: china and a lot of the diversion investments to Vietnam
Speaker 2: and Malaysia in particular. So therefore there was abnormally in 2021.
Speaker 2: But if you take 2021 aside, even for this year,
Speaker 2: there's the declining FBI Guy
Speaker 2: growth has been really like consistent and you can see
Speaker 2: that each year there's been almost like a reduction in
Speaker 2: FBI growth itself. So I think it's definitely one of
Speaker 2: the key factors because without FBI that Malaysia is very
Speaker 2: dependent or it will be difficult for the country to
Speaker 2: get more foreign investment to propel growth. And I think
Speaker 2: the other factor is also highlighted by World Bank, other
Speaker 2: economic reports that Malaysia has been performing about 5%
Speaker 2: GDP growth per year for the last about 10 years
Speaker 2: or even longer. But actually Malaysia potential could be done
Speaker 2: much higher than 5%. But of course we do understand
Speaker 2: that especially related to labor regulations, foreign immigration, these are
Speaker 2: the parts where Malaysia has been delaying some of the
Speaker 2: very necessary forms and because of that slowing down its
Speaker 2: economic potential, even though it is still growing at about 5%.
Speaker 2: The biggest economic concern heading into the next general election
Speaker 2: is worry about global economic outlook. Given this environment of
Speaker 2: high inflation, high interest rates and how this will affect Malaysia,
Speaker 2: we are seeing signs of media western economies, especially europe
Speaker 2: facing this situation already. Given the search and info
Speaker 2: caused by the fallout from Russia Ukraine war in terms
Speaker 2: of commodity, especially energy supply and price shocks that in
Speaker 2: turn push up inflation prompted central banks to be hawkish
Speaker 2: and aggressively raise interest rates, there's also uncertainty surrounding china's
Speaker 2: economic prospects. These major economies, US europe china Malaysia key
Speaker 2: export markets, accounting for
Speaker 2: Around one third of total exports and at the same
Speaker 2: time nearly 1/5 of Malaysia's GDP are exposed to the
Speaker 2: final demand from us, Europe and China. I guess there
Speaker 2: will be a long list to do as far as
Speaker 2: the next government is concerned among others. And speaking in
Speaker 2: general terms, perhaps I can sort of rattle off eight
Speaker 2: areas that I think are important.
Speaker 2: First address voter concern on the cost of living issue,
Speaker 2: especially on necessities like food security, affordable housing. Second, improve
Speaker 2: the quality and delivery of essential public services namely education,
Speaker 2: health care and public transport. Third would be to bring
Speaker 2: about a more balanced growth and equitable development across the country,
Speaker 2: especially for the less developed poorer states so that no
Speaker 2: part of the country will be left behind.
Speaker 2: Fourth continue and enhance policy support to the economically important
Speaker 2: smes to address the critical issues of human capital development,
Speaker 2: especially on talent and skilled force to aid the recovery
Speaker 2: of the tourism ecosystem as well as strengthen the Social
Speaker 2: Security and safety net
Speaker 2: For the vulnerable segment of the Society. five, I think
Speaker 2: the government knows they have to undertake economic reforms and
Speaker 2: restructuring to strengthen Malaysia's competitiveness,
Speaker 2: attractiveness and value proposition to invent too much show political
Speaker 2: will to tackle issues of governance, corruption integrity. Seven remain
Speaker 2: committed to medium term fiscal consolidation to avoid what I
Speaker 2: call UK style physical missteps that hit market and currency
Speaker 2: and jeopardize sovereign credit rating and one more thing is
Speaker 2: maybe over the longer term stay the cost on addressing
Speaker 2: climate change. Not only in terms of
Speaker 2: realizing commitments to lower emissions but also assist and guide
Speaker 2: communities and smes for a just transition towards sustainability
Speaker 1: And for more that sme perspective, let's bring in he's
Speaker 1: the ceo of click through Malaysia, a digital marketing consultancy
Speaker 1: in Kuala Lumpur. What's on the top of your wish list?
Speaker 2: I don't think so. There will be a lot of
Speaker 2: changes besides wanting a more stable government and the entire
Speaker 2: system needed to be said not only for sme I
Speaker 2: will say that the entire system for example in education
Speaker 2: sme
Speaker 2: to take care of the business mall, the policy need
Speaker 2: to reset. The mindset in the reset is actually more
Speaker 2: people friendly and business friendly as well and investor friendly.
Speaker 2: Whoever that is going to be elected to the government right.
Speaker 2: They have to have a mindset of doing all this
Speaker 2: reset and if they actually maintaining the status quo is
Speaker 2: just changing on the top, which is the minister helming
Speaker 2: the department without more robot
Speaker 2: mindset and resetting is going to be the same. It's
Speaker 2: going to be no different for us who is going
Speaker 2: to be elected to be a government.
Speaker 1: Could you tell us a bit more of that type
Speaker 1: of reset that you'd like to see, for example, the U.
Speaker 2: N. C. Your government put up a lot of effort
Speaker 2: there 100 over grants available for sme to like but
Speaker 2: they're not in touch with the market, the intention is good,
Speaker 2: they're helping. But the main issue now with sme is
Speaker 2: they are facing problem let's say in finance
Speaker 2: Wise and all that and they need help. But you
Speaker 2: are giving out a grant that you need to apply.
Speaker 2: The grant is actually a 50,000 cash one off for
Speaker 2: starting a new business and then you need to do
Speaker 2: a projection while it's good. Yeah it actually has to
Speaker 2: be available since without even pandemic but on pandemic it's
Speaker 2: actually those smes facing problem which is cash flow problem
Speaker 2: and wrong
Speaker 2: material, increased price from these are the problems that they
Speaker 2: are really facing it and what help they need. They
Speaker 2: don't need all these I. D. Card you know the
Speaker 2: kind where you need to go and apply and do
Speaker 2: projection for them. This is actually starting a business to
Speaker 2: help sme is actually to grant them more people friendly policy.
Speaker 2: Like for example one of help in text.
Speaker 2: These are the things that actually helping them instead of
Speaker 2: you asking them to go and apply for you know
Speaker 2: and then do a forecast for them and then your
Speaker 2: cash flow is it okay or not? Okay then only
Speaker 2: approve your loan and all that kind of stuff. This
Speaker 2: is not so friendly. Well it's very interesting that comes
Speaker 2: from smes leaders
Speaker 2: typically I would say the most resistance to change but
Speaker 2: I think when it comes to reset maybe a few
Speaker 2: things first and foremost continue to support sme in terms
Speaker 2: of adoption of technology in terms of
Speaker 2: digitalization, mechanization automation to help them address one key issue
Speaker 2: right now, which is a shortage of workers, especially foreign workers.
Speaker 2: And I think shortage of workers is part and parcel
Speaker 2: of this global, global phenomenon of shortage economy. So I
Speaker 2: think that can help them in terms of addressing the
Speaker 2: issue as well as boost their productivity and efficiency as
Speaker 2: well as competitiveness.
Speaker 2: Second, I guess continue to have them in terms of
Speaker 2: funding because I think in this environment of rising interest rates,
Speaker 2: certainly they're going to be a big challenge. So I
Speaker 2: suppose the special schemes by the government will continue to
Speaker 2: be rolling in as far as sme is concerned.
Speaker 2: I think the budget 2023 that was announced recently have
Speaker 2: one particularly good news for the smes, which is the
Speaker 2: lowering of the preferential corporate income tax rate paid by
Speaker 2: smes earlier, they were paying 17% against the standard corporate
Speaker 2: tax rate of 24%. But in budget 2023, it was
Speaker 2: proposed for that income tax rate to be lowered to 15%.
Speaker 1: Here's what we've discussed so far with three political coalitions
Speaker 1: vying for votes Malaysia's 15th, general elections on November 19
Speaker 1: are likely to be closely fought cost of living issues
Speaker 1: are the top of the minds of many voters and
Speaker 1: sorting out the economy will be a key priority for
Speaker 1: the incoming government
Speaker 1: businesses are calling for more support to stay competitive, particularly
Speaker 1: given a worsening labor crunch in the country. So we
Speaker 1: heard earlier that call from a business owner to reset
Speaker 1: the system so that it becomes more investor friendly. So
Speaker 1: I mean, how do you think that Malaysia can boost
Speaker 1: its value proposition to investors?
Speaker 2: We need to have the kind of long term narrative
Speaker 2: as far as where the economy is heading. I think
Speaker 2: that's lacking over the last few years and for that matter,
Speaker 2: perhaps not very clear after G14, the last general election
Speaker 2: because we have too much politicking, it's not so much
Speaker 2: policy making
Speaker 2: that create a bit of uncertainty clouding the long term
Speaker 2: outlook for the economy. So I think that is something
Speaker 2: that needs to be done going forward to have that
Speaker 2: kind of narrative. Of course it will come along with
Speaker 2: a lot of reforms
Speaker 2: structuring it will be tied to stuff like fiscal consolidation
Speaker 2: because I think one thing that can happen when you
Speaker 2: have fiscal consolidation is that the government perhaps can afford
Speaker 2: to lower corporate income tax rates to attract F. D. I. S.
Speaker 2: To boost domestic investment
Speaker 2: because it is really a competition, a beauty contest among
Speaker 2: regional economies. We have seen over the past few years,
Speaker 2: some of the Asean economies like Indonesia and Philippines taking
Speaker 2: steps to lower the corporate income tax rate, I believe
Speaker 2: right now, our corporate income tax rate is among the
Speaker 2: highest in Asean,
Speaker 2: I'm not mistaken at 24%. So I think those are
Speaker 2: among the things that need to be addressed. We really
Speaker 2: really need to address the issue of human capital development,
Speaker 2: especially the talent and skill workforce because the good thing
Speaker 2: that's going on for Malaysia right now, FBI is not bad.
Speaker 2: It's coming in,
Speaker 2: we do benefit from, for example, the geopolitical race, the
Speaker 2: geo economic tensions between us and china, for example, since 2018,
Speaker 2: because of the US china trade war and now expanding
Speaker 2: into tech war, we do see benefits to Malaysia
Speaker 2: in terms of the relocation FBI to resilience in supply chain.
Speaker 2: But from my conversation with companies in the electronics sectors,
Speaker 2: the issue is skilled workforce and talent. So these are
Speaker 2: the kind of things that we need to see.
Speaker 2: One of the key things that Malaysia really needs to
Speaker 2: reform is how does it regulates the foreign labor sector?
Speaker 2: As most of us are where Malaysia has two million
Speaker 2: of legalized foreign workers and maybe about two or even
Speaker 2: three million of illegal foreign workers, which we are unsure
Speaker 2: because of the nature of undocumented labor. So the thing
Speaker 2: is Malaysia needs to be able to move away from
Speaker 2: the low productivity that has been taking Malaysia for the
Speaker 2: last 20 years or even longer.
Speaker 2: And because of the influx of foreign labor, you do
Speaker 2: have trends West Ministry in the manufacturing sector, the wages
Speaker 2: for the local Malaysians are depressed right Because they're competing
Speaker 2: with people from Indonesia Bangladesh and Malaysia needs to lean
Speaker 2: off its reliance of cheap foreign labor or basically just
Speaker 2: massive foreign labor in order to increase the productivity output
Speaker 2: for each of its Malaysian workers rather than increasing just
Speaker 2: the number of workers per se.
Speaker 2: And now, because post pandemic, many of the foreign workers
Speaker 2: has not returned back to pre pandemic levels. Therefore, especially
Speaker 2: labor incentive sectors like smes in the food and beverage
Speaker 2: sector or even manufacturing are facing a very serious labor shortfall.
Speaker 2: So I would say that this is maybe a timely
Speaker 2: opportunity for Malaysia to considering moving its economy towards less
Speaker 2: being dependent on manpower by
Speaker 2: towards greater productivity.
Speaker 1: It's not all bad news. What bright spots do you
Speaker 1: see in the economy?
Speaker 2: One is we expect the tail winds from full economic
Speaker 2: opening this year rolling into next year, which also include
Speaker 2: the opening of the country's international borders. That is leading
Speaker 2: to the revival of tourism sector. Of course not complete recovery,
Speaker 2: gradual slow process to return to the pre covid 19
Speaker 2: levels in terms of international tourist arrivals. But when you
Speaker 2: have recovery and tourism sector, it will also lift tourism
Speaker 2: related industries like F and B. Accommodation, transport, especial
Speaker 2: aviation, recreation and entertainment whose real GDP right now are
Speaker 2: still below the pre covid level because they were the
Speaker 2: others hit during the pandemic and currently still lagging in recovery.
Speaker 2: So I think that's one area of bright sparks in
Speaker 2: the economy
Speaker 2: secondly, as I mentioned earlier about Malaysia benefiting from FBI.
Speaker 2: There's encouraging signal for FBI outlook. Taking cue from 2021
Speaker 2: there was this 200 plus percent third in approved FBI
Speaker 2: to a record value of over 200 billion after the
Speaker 2: pandemic trigger decline in 2020. And the momentum actually continued
Speaker 2: into the first half of this year, where the approved
Speaker 2: FBI amount of 87 billion
Speaker 2: just for the first six months of this year is
Speaker 2: higher than the historical pre 2021 annual or fully approved
Speaker 2: FBI value. So it shows sustained momentum of strong approved
Speaker 2: FBI since last year. So we have this positive outlook
Speaker 2: in terms of realized FBI because of the search and
Speaker 2: the proof of the other.
Speaker 2: We believe this reflects the situation where Malaysia is benefiting
Speaker 2: from relocation FBI for supply chain resilience and security in
Speaker 2: the wake of the geopolitical and geo economic risk I
Speaker 2: mentioned earlier. And unsurprisingly, the bulk of the approved FBI
Speaker 2: in tech related sectors
Speaker 2: where over half of the total approved FBI last year
Speaker 2: and first half of this year, were in electronic sectors.
Speaker 2: And there's another, I think 16% of the total in
Speaker 2: the telco sector and when I dig deeper, it is
Speaker 2: largely approved FBI in data centers because bright sparks in
Speaker 2: Malaysia economy is that Malaysia inflation is actually one of
Speaker 2: the lowest in the asean region effect, if not maybe
Speaker 2: even in the
Speaker 2: Asia pacific the East AsIA pacific region. So the low
Speaker 2: inflation is providing a lot more kind of stability, especially
Speaker 2: in terms of cost of living issues. But of course,
Speaker 2: all these are contingent about continued government subsidies and also
Speaker 2: price control, which we may not be certain that it
Speaker 2: will definitely be continued under the new government post election.
Speaker 2: The other bright sparks of the economy is also that
Speaker 2: comedy prices. I mean, of course, there's been some of
Speaker 2: the decline
Speaker 2: commodity prices in the first half of this year, but
Speaker 2: compared to pre pandemic commodity prices are still much higher
Speaker 2: compared to 2019 or 2018, for example, palm oil prices,
Speaker 2: petroleum prices. The Malaysian government budget estimates is based on
Speaker 2: $90 per gallon for crude oil. So definitely with high
Speaker 2: commodity prices, Malaysia economy is going to benefit because it
Speaker 2: is ultimately a net fuel exporter and also exports a
Speaker 2: lot of the pump oil. But will say that this
Speaker 2: Resource export has been driving the Malaysia growth for the
Speaker 2: last 30 years. And we have seen during COVID, when
Speaker 2: you have a sharp drop in commodity prices, how badly
Speaker 2: your markets can be affected. So you might be doing
Speaker 2: in Malaysia's favor for now, but we can't take for
Speaker 2: certain case in 3-5 years.
Speaker 1: And what are some opportunities investors should be looking out
Speaker 1: for
Speaker 2: in view of the macro challenges from your political tensions,
Speaker 2: high inflation, high interest rates, environment recessions that
Speaker 2: raised globally as well as I suppose some overhang on
Speaker 2: domestic politics pending the outcome of the general elections. Our
Speaker 2: equity research team, basically advocating to maintain a balanced growth
Speaker 2: value portfolio positioning that is overlaid with E. S. G.
Speaker 2: And yield themes assuming budget 2023 will be eventually passed
Speaker 2: after the election without me,
Speaker 2: minimal changes. It will be good for three particular sectors.
Speaker 2: The measures like income tax cuts for the middle income
Speaker 2: taxpayers and the continued tax handouts for lower income households
Speaker 2: will be positive for consumer staples. Talk the technology and
Speaker 2: renewable energy sectors we think will benefit from the supportive
Speaker 2: tax and investment incentives and at the same time the
Speaker 2: additional exemption
Speaker 2: and incentives for accelerating electric vehicle adoptions and development of
Speaker 2: national charging infrastructure is favorable for automotive sectors.
Speaker 1: So it all adds up to a daunting in trade
Speaker 1: for Malaysia's next government as the clock ticks down to
Speaker 1: the November 19 election. After the politicking of the past
Speaker 1: few years. Many voters are hoping that the outcome of
Speaker 1: these elections will be a stable government.
Speaker 1: So having that long term certainty could help Malaysia live
Speaker 1: up to its economic growth potential
Speaker 1: with foreign direct investment growth slowing down. That could also
Speaker 1: help Malaysia compete with other up and coming asian economies.
Speaker 1: It could also be a good time for a reset
Speaker 1: to the country's labor ecosystem so that it can turn
Speaker 1: out better skills and more productive workers. Finally, investors can
Speaker 1: expect some bright spots from post pandemic opening from commodity
Speaker 1: prices and the renewable energy sector.
Speaker 1: Those are the five things you need to know about
Speaker 1: the Malaysian elections and the economy. My thanks to my
Speaker 1: guest today, Amelia's chief economist at Maybank Investment Banking Group,
Speaker 1: Kevin Tang, senior research officer at the I. C. S.
Speaker 1: Use of institute and ceo of click to Malaysia
Speaker 1: money mind as every saturday at 10:30 p.m. On mediacorp
Speaker 1: c n a. You can also catch us online at
Speaker 1: CNN dot asia on youtube.