JP Morgan: Malaysia’s rating upgraded from underweight to neutral due to reforms, investor confidence

International financial rating firm JPMorgan has upgraded its rating on Malaysia from “underweight” to “neutral” after almost six years, revealed Rajiv Batra, head of Asia-Pacific (ex-Japan/China) equity strategy at JPMorgan.

The revelation was done during a recent interview with CNBC.

The shift was due to several key factors including policy reforms, data-centred investments, and a significant infrastructure build out.

“What was more exciting for us were all the signs that were in the making last year,” Batra said.

Batra was surprised with the pace of progress with the Malaysia recording a 4.2% gross domestic product growth in the first quarter of 2024 and earning growth tracking at around 10 to 11%.

This led to a re0evaluation and upgrade.

“We need to give credit to the country,” Rajiv added.

The firm found that the decision to cut subsidies as a bold move.

The savings from these subsidy cuts are being redirected towards productive uses in the economy, enhancing literacy, reskilling people, and implementing progressive wage policies.

He added that Malaysia is taking inspiration from Singapore in this regard.

“This money will go for productive uses in the economy,” Rajiv said.

JPMorgan’s upgrade is also reflective of a governance reset in the wake of the 1Malaysia Development Bhd (1MDB) scandal.

The Anwar Ibrahim administration passed pivotal policies and reforms, including the National Energy (NE) transition and the Madani economy budget while remaining committed to fiscal consolidation without sacrificing growth, aiming for a 5% growth rate.

Positive perception among foreign investors

Foreign investors are also returning with their investments due to a change in their perception on Malaysia.

“We suffered (US$)7 billion outflows in Asean equities this year. Malaysia started with around (US$)150 (million) to (US$)160 million outflows in the first quarter, but saw a return of (US$)200 million in the second quarter,” said Rajiv.

Notably, year-to-date, the bellwether index FBMKLCI has gained 11%, while FBM70 is up 28%.

Meanwhile, the ringgit has strengthen more than 2% against the US dollar from its over two-decade low in February.

The increased interest is further demonstrated by Rajiv’s own observations during recent travels.

“People are warming up to Malaysia and asking where they should invest,” he added, reported The Edge.

Malaysia’s potential as a technology hub are among the reasons for the renewed interests of investors on this nation. The foreign investors also recognise multiple themes and sectors.

“Foreign investors are taking baby steps and putting money in,” he said, although the foreign ownership level remains at only 19%, not yet peaking at the 35% to 40% levels.”

JPMorgan’s upgrade reflects a combination of economic growth, effective policy implementation and improving governance, making Malaysia a more promising investment destination, he said.

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