The Malaysia stock market has been one of the best performers in the region during the past 6 years after the global financial crisis. Since 2009, the Kuala Lumpur Composite Index (^KLSE) has advanced from a low of about 840 point in March 2009 to a high of about 1885 points in last June. Even at the current level of about 1,752 points, the index has returned a total of 12.2% compounded return for investors since 2009. However, has the index ran its course and starting to face the
inevitable reversal in the next few years? Or is what we are experiencing just a correction and the market is set a a record breaking next-decade. Let’s look at both angle.
The Malaysia economy is still mainly due to export and commodity activities. With the huge drop in commodity prices and the possibility of a slowdown in the Chinese economy, there might be spill-over effects for a small country like Malaysia.
Malaysia’s household debt is one of the highest in the region. It is recorded to have a household debt to GDP ratio of about 87% at the end of the year in 2014. With most of the population already servicing such a huge debt loan, it might be a hinder for the country to expand consumers’ spending to increase the GDP.
The threat of radical extremism is very real in the country. This represents the highest risk for the country as everyone has seen how popular democratic uprising in the middle east can lead to complete anarchy if the transition is not handled properly.
Yet, Malaysia is not without hope. It still has a relatively young population. More than 50% of its population is less than 30 year old. The younger generation is the engine of growth for the future of the nation. With such a young population, the future for Malaysia might be far from over.
The country is currently implementing the Good and Services Tax in mid 2015 which has been a trigger point for consumers to be worried enough to hold off some purchases. This has taken a toll of the economy activities in the country. However, if the GST-scare turns out to be just a temporary issue for the country, investors can expect growth after the GST system has been implemented smoothly.
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On a marco level, a country would have risk and opportunities that are out of control of any company operating inside it. Therefore, for an investor, having a well-diversified portfolio geographically might also be a good idea to explore.Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies!We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded. The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned above