SINGAPORE (June 27): History was made in Malaysia on May 9 when the opposition caolition, Pakatan Harapan (PH), won the 14th general election for the very first time, ending the six-decade rule of Barisan Nasional (BN).

Tun Dr Mahathir, Malaysia’s prime minister from 1981 to 2003 with BN, represented PH in this election and is now serving his second term as prime minister once again. He is also the world’s oldest elected leader.

Following the election, investigations immediately started into the missing billions from the scandal-ridden government investment fund 1Malaysia Development Berhad (1MDB), which saw the seizure of more than a billion ringgit worth of handbags, jewellery and cash. 

However, more drama was unfolding elsewhere.

DAP secretary-general Lim Guan Eng was sworn in as Malaysia’s new finance minister, making him the first Chinese to helm the ministry in 44 years. And a month later, Tommy Thomas was appointed as the attorney general, the first non-Malay to take up this position. 

According Schroders in a June report, this is a noteworthy event.

“One of the perennial drags on the Malaysian economy over the last few decades has been its brain drain,” says Robin Parbrook, co-head of Asian equity alternative investments, and King Fuei Lee, head of Asian equities (Singapore).

Brain drain is essentially the emigration of highly-skilled individuals from a country, and represents a depletion of the country’s human capital stock which necessarily dampens economic growth and reduces tax revenues, while imposing negative externalities on those remaining.

And if left uncheck, this could cause a vicious circle that traps a country into an undesirable equilibrium of low levels of human capital and a large technological gap.

This brain drain issue is acute in Malaysia, according to World Bank, as one in every 10 skilled Malaysians now plans to leave the country, double that of the global average rate.

Against population backdrop of 28 million people in Malaysia, this clearly shows a huge loss of talent and erodes an already narrow skill base that is lacking in compensating inflows of skilled migrants. When surveyed, 60% of the respondents have pointed at “social injustice” as being one of the top three reasons as to why they have chosen to leave.

In Malaysia, a majority two-third of the population are made up of Malays, who hold the Bumiputra status. The Constitution affords Bumiputra citizens various special privileges such as mandatory discounts on property, quotas for educational opportunities, preferential treatment for government contracts, extra assistance when starting businesses and more.

Hence, it comes as to no surprise that other ethnic groups, especially the Chinese, are placed at a considerable disadvantage when embarking on their own economic progression paths, conjuring strong feelings of unfair treatment and non-inclusiveness.

It is also not surprising that this has led to many Chinese Malaysians heading over to Singapore, where Chinese makes up the largest ethnicity.

Such a big shift in talent would definitely catch the attention of the Malaysian government and hence many efforts over the years has been introduced to address this issue, including the launch of 1Malaysia programme and the establishment of the Talent Corporation.

However, these efforts were not very successful. In fact, one of the by-products of the 1Malaysia programme, the 1Malaysia Development Berhad (1MDB), is currently at the front and centre of the ongoing probe into corruption and graft of epic proportions.

In an interview with Channel News Asia, Mahathir said, "We have reduced the disparity with the Malays and mainly the Chinese, but there are certain areas where we need to give Malays some kind of push.”

Mahathir said that Malay parents, by and large, cannot afford to send their children to university and thus more scholarships need to be given to them.

He also added that the Chinese in Malaysia “are largely in business” and “in business, you can make tons of money”.

“We cannot change Malays into Chinese, Chinese into Malays, but we can change their economic situation,” said Mahathir.

While still early days, if the recent appointments of non-Malays to key political positions are an indication of the direction the country is moving in, then perhaps the brain drain can finally be stemmed, and this will have important positive implications on the country’s longer-term economic prospects.

Until then, investors are generally more mixed in their views of the new ruling government. Part of their reticence lies in PH’s election promises which, when implemented, are likely to increase the fiscal burden of the country. 

Investors also fear that some of the discussed populist measures aimed at curbing the rising cost of living will be at the expense of certain industries such as toll roads, utilities, telecommunications and essential goods.

Uncertainty is also handing over the government’s review of mega projects undertaken by the ousted Najib. 

“Our view on the Malaysian market is unlikely to change in the near-term. From a top-down valuation perspective, the market is still not cheap, and is pretty much sitting in the neutral territory,” says Parbrook and King.

Meanwhile, from a bottom-up analysis, there seems to be limited stock opportunities offering positive upside to fair values. But until positive signals emerge, Parbrook and King says that this is likely still a case of Malaysia “tak boleh”.