Asia's eighth biggest economy defies global headwinds. Will it be smooth sailing for much longer?
Malaysia may not be the most used to making Western headlines, but over the past few weeks it has repeatedly done so. After staging the second biggest IPO this year after Facebook, at $3.2bn, it should see another $2bn offering in the coming month. Its sovereign fund issued the biggest sole-led dollar bond sale ex-Japan in May. And its stock exchange is about to surpass Hong-Kong as Asia largest market for international listings.
The economy, indeed, still has good wind in its sails. After two months of decline, Malaysia exports rebounded strongly in May by 6.7 per cent, thanks to a resilient export model based on palm oil, mineral fuels, and electronics. Imports, on the other hand, rose 16.2 per cent. Another good sign that Malaysia's economy is embarked on an healthy path: its rising middle class keeps on supporting strong domestic demand.
This has allowed the economy to grow by 4.7 per cent in the first quarter of this year, and economists forecast 2012 growth at the same rate. Malaysia central bank hasn't felt necessary to follow Indonesia, Thailand and Philippines in cutting interest rates to revive the economy: the benchmark rate remains at 3 per cent.
Economists are reasonably confident this will last. But investors look even more enthusiastic. Felda Global Ventures, last month's mammoth IPO, managed an 18 per cent pop on the listing's first day - in a rather turbulent global climate. But Malaysia also bucks the trend in numbers of fresh IPOs. At 47 last year, it was the only country to score more deals than during the same period a year ago. Clearly this shows investor confidence that domestic consumption will stay robust for the months to come.
This will play in the hands of Najib Razak, Malaysia's president. Mr Najib plans many more of these IPOs, in an effort to divest major stakes in government-linked companies. The idea is to distribute part of the proceeds to the country's hard working people (for example, settlers and farmers), and to make these corporate giants more efficient. This is part of Malaysia's 'transformation' programs, an effort by the government to modernize the economy, foster social progress and pull the country out of the 'middle income trap'. Its aim is to raise per capita income to $15,500 by 2020, from $9,600 last year. If the country's 27.5m citizens feels Mr Najib delivers on his promises, he may win another mandate during the next presidential elections, which should be called next September.
His success is not guaranteed. Exports will undoubtedly go down, due to declining commodity prices and wobbly global demand. Implementing the 'transformation' programs will also be a challenge, as corruption is still rife and redistributing the riches of the commodity boon is easier said than done. But the economy should continue weathering ominous winds from Europe, the US and most other surrounding markets. The rise of middle classes in emerging markets should make palm oil a winning commodity in years to come, and mineral fuels should also follow that trend. Meanwhile, domestic consumption shows no sign of abating.
And most importantly, the nation looks awash with cash. The country runs one of the biggest public deficits among Asian nations (5 per cent), but the government holds major stakes in a number of strategic, sizeable companies. Pension funds have more money in their coffers than they've ever had, as shown - again - by the recent success of major IPOs. Private investors also seem to be doing well: a consortium of Malaysian businesses recently won a bid to buy the Battersea power station, a landmark London building. Whilst much of the world looks set for a power outage, puzzling Malaysia thus seems to offer a rare glimmer of light.
Credit photo: farizulhafizawang