Total foreign direct investment (FDI) slipped 12.7% y/y to RM41bil in 2017 due to slower growth in investments from the manufacturing and construction sectors, and the government becoming more selective in its investment agenda that focuses on quality projects in targeted ecosystems that will have a significant positive impact on growth. It fell in line with global FDI inflow which dropped by 23.5% to an estimated US$1.43tril due to moderate global economic growth and world trade volume

Going into 2018, we believe FDI flows into manufacturing will remain subdued in 2018 due to the increasing focus on quality investments in the targeted ecosystems that should yield positive impact on the domestic economy. Thus, we expect the strategy to zoom in on developing and enhancing local supply chains to support multinational companies. On the services side, we believe the main drivers will be global establishments, healthcare, education and hospitality.

Despite the current volatilities on the global front driven by noises like the risk of emerging market debt crisis, trade war and currency war, we are off to a good start in 2018. A total of 402 projects with a proposed investment of RM75bil came in as at May. On an annualized basis, we could reach around RM180bil in 2018, supported by a healthy global GDP of 3.6% in 2018 added with favourable world trade projected around 4.0%– 4.4%. Furthermore, our focus to become a leading F&B exporter through FDIs could drive investments. Such focus would attract established brands with the right support for local companies in meeting global standards.

• Total foreign direct investment (FDI) slipped 12.7% y/y to RM41bil in 2017 from RM47bil in 2016. The decline was due to slower growth in investments from the manufacturing and construction sectors.

• Slower FDIs into Malaysia were also due to the government becoming more selective in its investment agenda. The focus has been more on quality projects in targeted ecosystems that will have a significant positive knock-on and multiplier effects on the domestic economy.

• Besides, the poor FDI performance in 2017 also fell in line with global FDI inflow. In 2017, global FDI inflow dropped by 23.5% to an estimated US$1.43tril from US$1.81tril in 2016. This was due to moderate global economic growth and world trade volume

• Meanwhile, China remained the largest contributor to our FDI in 2017 with RM6.9bil worth of committed investments, followed by the Singapore (RM6.1bil), the UK (RM5.5bil), Japan (RM5.0bil), Germany (RM3.8bil), South Korea (RM1.0bil) and the Netherlands (RM0.6bil).

• In 2017, the total approved investments clocked in at RM197.1bil, a decline of 7.4% from RM212.9bil in 2016. The drop was due to lower investment in the services sectors which fell by 17.2%. Foreign investments approved by MIDA for 2017, meanwhile, slid RM5.9bil to RM21.5bil.

• Also, the ratio of domestic investment to total approved investment remained healthy at 72.2% in 2017, with RM142.4 billion generated domestically, while the balance of RM54.7 billion came from foreign investors. We found China, Singapore, the UK, Japan, Germany, South Korea, and the Netherlands jointly accounted for 61.5% of total foreign investments in three core areas i.e. manufacturing, services and primary sectors.

• In 2017, investments in both the manufacturing and services sector weakened. FDIs in the manufacturing sector tumbled by 46.9% to RM6.4bil from RM12.1bil in 2016 in tandem with the drop in the total number of projects to 687 from 733 in 2016. For services, it slipped by 17.4% to RM19.8bil from RM23.9bil in 2016 dragged by the real estate.

• Going into 2018, we believe FDI flows into manufacturing will remain subdued in 2018 due to the increasing focus on quality investments in the targeted ecosystems that should yield positive impact on the domestic economy. Thus, we expect the strategy to zoom in on developing and enhancing local supply chains to support multinational companies. On the services side, we believe the main drivers will be on global establishments, healthcare, education and hospitality.

• Despite the current volatilities on the global front driven by noises like the risk of emerging market debt crisis, trade war and currency war, we are off to a good start in 2018. A total of 402 projects with a proposed investment of RM75bil came in as at May. On an annualized basis, we could reach around RM180bil in 2018, supported by healthy global GDP of 3.6% in 2018 added with favourable world trade projected around 4.0%–4.4%. Furthermore, our focus to become a leading F&B exporter through FDIs could drive investments. Such focus would attract established brands with the right support for local companies in meeting global standards.

Source: AmInvest Research - 25 Jul 2018