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May 13, 2013

Malaysia Is Gateway to ASEAN and Optimal Investment Destination

Setting up a subsidiary in the Malaysian capital, Kuala Lumpur, made perfect sense for investment firm Saturna Capital.

Not only does Malaysia offer some of the best investment opportunities in Islamic finance (and Bellingham, Wa.,-based Saturna is a leader in Sharia-compliant investing), but the country is also the gateway to Southeast Asia, according to Monem Salam, director at Saturna who runs the Malaysia office, and it is the optimal location from which to access the region’s many great investment opportunities.

“Malaysia is the most developed of all the ASEAN (Association of Southeast Asian Nations) countries, and not only are companies here very business savvy with clean balance sheets and good corporate governance, a lot of them have both regional business and an international focus,” Salam said. “To that end, there’s a lot of long-term potential both here and in the region overall, and from Malaysia, we have the opportunity to invest in countries like Mynamar, which is just opening up, and take advantage of the growth in places like Bangladesh, Cambodia and Laos.”

Like other foreign companies with Malaysian subsidiaries, Saturna (which opened its Malaysia office in 2010) was reassured that last week’s election, the most tightly contested and fractious in the country’s history, assured another victory for the ruling Barisan Nasional party, given that the stellar economic progress Malaysia has made through the years is its hallmark.

But even if the election had gone the other way and the Anwar Ibrahim-led opposition had succeeded in ousting power, there’s little doubt in Salam’s mind that the authorities would not have deviated from the path the country has chosen to go on, and that by 2022, Malaysia, which has made unbelieveable economic progress since the 1997 Asian Financial Crisis, which took a heavy toll on its economy, will meet its Millenium Development Goals. “Malaysia is taking the right steps to reach its goals and even if there’d been a change in the government, they would have stuck to the plan, because any government that wants to achieve those goals must have business on its side,” Salam said.

And to that end, Salam said there is good investment opportunity in a variety of sectors. The construction sector, for instance, is a prime area, since the Malaysian government’s ambitious economic transformation program has been pouring money into infrastructure development, and the construction of office buildings and transportation networks, to name but a few. And as the Malaysian middle class continues to expand, people are going to need different kinds of services, including financial services and healthcare.

“Healthcare penetration in Malaysia is not very high and needs to be beefed up, so there are a number of companies that one can take advantage of as an investor,” Salam said.

Malaysia has a lot going for it and the foreign direct investment continues to roll in and prop up growth. The country’s greatest challenge is probably the outlook for global growth, Salam said, and although Malaysia is not as dependent on the United States and China as it was in the past, they are both still major trading partners for Malaysia, and any slowdown in their economies would translate into a slowdown for Malaysia as well.

And of course, Japan’s quantitative easing program has put pressure on the Malaysian ringitt to rise after the election, Salam said. The ringit rose by 3% and the appreciation is only set to continue.

And the election did underscore one important issue that at this juncture, probably nags Malaysia more than any other: The sharp ethnic divides in its population.

That the Barisan Nasional party, which has ruled Malaysia ever since it became an independent nation in 1957, won on a very thin margin is extremely telling and a wake-up call to the fact that in its new tenure, the ruling party may have to seriously reconsider the race-based, affirmative action policies that it has had in place for decades, and that have always favored ethnic Malays over Chinese and Indians, the other two important demographic groups.

The issue has always been a thorn in Malaysia’s side but this last election had an unprecedented number of voters, Salam said, many of whom are part of the Twitter and Facebook generation, and they are ready for change.

So as much as the Malaysian government has its work cut for it, the fragile social fabric of the country is a parameter that investors, now more than ever, will also have no choice but to keep tabs on.

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