In this article, we’ll take a look at the benefits and risks of investing in Malaysia, how to invest in the country’s stock market, and take a brief look at its real estate industry as an alternative asset class that investors may want to consider to round out their portfolio.
Benefits and Risks of Investing in Malaysia
Malaysia has an open state-centric and newly industrialized market economy. Between 1961 and 2000, the country reported gross domestic product (GDP) growth of 7.0% on average, which has made it one of the best performing economies in the region. However, these growth rates slowed to just over 4.3% between 2001 and 2020 as the economy matured. According to the IMD Competitiveness Index, in 2021, the Malaysian economy was the 32nd most competitive market in the world out of 63 countries and 15th in economic performance.The World Bank forecasted that Malaysia should have a GDP growth rate of 5.5% in 2022 and 4.5% in 2023. As with most emerging market economies, there can be an element of geopolitical risk and monetary policy risk associated with investing in Malaysia. The country has had political tensions, instability, and budget deficits in the past that have drawn investor scrutiny.
Investing in Malaysia’s Stock Market
Exchange-traded funds (ETFs) represent the easiest way to invest in Malaysia. By holding a diverse basket of stocks, these securities offer instant diversification and are easily bought and sold on U.S. stock exchanges. The most popular ETF used to invest in Malaysia is the iShares MSCI Malaysia Index Fund (NYSE: EWM), which mimics the MSCI Malaysia Index. American Depository Receipts (ADRs) represent another option for international investors looking to avoid foreign exchanges. These individual companies could be purchased as a small part of a larger portfolio. But investors should be aware that many of these ADRs are relatively illiquid and may be difficult to buy and sell at attractive prices. Here are some of the most popular Malaysian ADRs:
Malayan Banking Berhad (MLYBY)Genting Berhad (GEBHY)Genting Malaysia Bhd (GMALY)MBf Holdings Berhad (MBFBY)Tenaga Nasion Berhad (TNABY)
Finally, international investors can invest in the country’s stock exchange—the Bursa Malaysia, which is one of the largest exchanges in Asia and offers a wide variety of investment choices. The downside is that U.S. investors must open foreign brokerage accounts and may be subject to paying foreign capital gains taxes on any profits.
Malaysian Real Estate Investment
After refocusing its efforts many years ago, Malaysia has made tourism its third-largest revenue contributor. This has made real estate investment a very popular alternative form of investment for many international investors. According to the Global Property Guide, home prices posted an average annual price growth of 7.5% from 2010 to 2019, but was .3% from Q1 2020 to Q1 2021 as a result of the COVID-19 pandemic. Despite these favorable outcomes, there are several risks that investors should carefully consider. Government attempts to make housing more affordable have led to an oversupply, which led to the introduction of property taxes and restrictions on foreign buying. The rental market is small and has experienced weak demand, leading to falling rental yields. As a result, there are not many publicly traded real estate trusts for investors, but property can be purchased directly or invested in through various property management firms.
