Yes, the 1Malaysia Development scandal has adversely affected Malaysia’s investment climate. But no, it is unlikely to cause permanent damage as the economy is resilient.
This is the assessment of Global Risk Insights, a world-leading publication for political risk news and analysis.
It says that since investigations began into debt-ridden 1MDB, there have been signs of declining investor confidence in Malaysia’s usually robust stock market.
In May this year, Bloomberg published a report detailing the end of Malaysia’s eight-month-long bull market run, as investors hurriedly sold their stocks and sought out other Asean markets with better growth prospects.
“Yet against the backdrop of a challenging global economic outlook, and given the historical resilience of the Malaysian economy, it is important not to allow alarmism to cloud our evaluation,” says the report.
It says the scandal which has thrown Prime Minister Najib Razak into the international limelight, is indicative of the country’s failure to effectively tackle corruption in Malaysia’s top echelons.
Pointing out the “brutal yet masterful” way in which Najib axed opponents, it notes that Najib’s hardening ruling stance has been of concern.
However, Global Risk Insights report says, the ruling party has delivered economically for Malaysia.
“The risks of doing business in such a climate continue to be outweighed by the attractive tax incentives offered by the government, Malaysia’s strategic proximity to the primary Asian markets, and its consumers’ growing spending power.”
One element that sets the 1MDB case apart, says the report, is the level of foreign intervention. It cites the US Department of Justice’s move to seize more than USD1billion in 1MDB-related “stolen assets”.
“Despite ruffling some feathers between Malaysia and Washington, the case is unlikely to have a great impact on US investment in Malaysia, which has been and will remain strong.
“Any negative outflow that does occur will be cushioned by China, which – after two Chinese firms launched multi-billion-dollar bailouts of 1MDB assets – leapfrogged Japan, Singapore and the US to become Malaysia’s largest investor.”
The report points out that the scandal has coincided with a global slump in energy and oil prices, causing a slowdown to Malaysia’s economic growth. It has also coincided with a global economic downturn caused by stock market volatility due to uncertainty before, during and after the EU Referendum and Britain’s decision to leave the single market.
“What is certain is that Malaysia’s economy is remarkably resilient; just as it successfully weathered the 1997 Asian Financial Crisis, it is likely to recover from its current position,” says the Global Risk Insights report.
It says although the 1MDB crisis continues to dominate headlines, it will not force a tectonic shift in Malaysia’s economic landscape.
“Investors remain confident in Malaysia’s well-developed regulatory framework, and the stock market, despite wavering, is beginning to regain its stability. For now at least, Malaysia has seen off the worst of this political and economic storm, and will seek to renew its status as an exciting emerging market.”
FMT Reporters Online