MALAYSIA'S investment approvals rose 0.5 per cent to 202 billion ringgit in 2018, reversing direction from 2017's fall of 5.8 per cent -- an encouraging sign, given the weaker global outlook and subdued business sentiment, said UOB senior economist Julia Goh in a note on March 15.
With China manufacturing investments in particular seeing strong growth, Malaysia stands to emerge as a beneficiary of trade tensions between the United States and China, she added.
Investment approvals are used as an indicator of future realised investments, and have averaged 169 billion ringgit yearly since 2006. In 2018, a 48 per cent rise in approved foreign investments to a record 80.5 billion ringgit offset a 17 per cent fall in approved local investments to 121 billion ringgit.
Performance was driven mainly by a 37 per cent rise in approvals in the manufacturing sector, to 87 billion ringgit. This included 20 billion ringgit in approved China manufacturing investments, more than five times the previous year's figure. This made China the country with the largest value of manufacturing approvals, with Indonesia a distant second at 9 billion ringgit.
"Malaysia stands out as a beneficiary resulting from the trade diversion and supply chain relocation away from China, especially in electronics, machinery, wood, paper, plastics, and rubber," said Ms Goh.
Based on channel checks and newsfeeds, UOB's view is that the trade tensions have accelerated plans for foreign companies to expand production in existing Asean-based facilities, or acquire or partner companies in the region to ramp up capacity.
"However the net impact for Malaysia remains uncertain as positives could be offset by broader weakness in global demand, and near-term capacity and labour constraints," she added.
Most of the manufacturing approvals were for new projects, with the rest for expansion. Petroleum and petrochemicals attracted the largest share (33 billion ringgit), followed by basic metal products (13 billion ringgit) and electrical and electronics manufacturing (11.2 billion ringgit).
Services attracted just over half the total project value of investment approvals, though this was down 17 per cent from the previous year. Domestic investors accounted for 84 per cent. Almost half the total (48 billion ringgit) went to real estate investments excluding commercial buildings, followed by utilities (10 billion ringgit) and financial services (9.7 billion ringgit).
Investment approvals in the primary sector fell 12 per cent to 11 billion ringgit, mainly in the mining sector.
Last year, gross foreign direct investment (FDI) inflows fell 8 per cent to 144 billion ringgit. But 2018's higher investment approvals, particularly from foreign sources, bode well for future FDI flows, said Ms Goh. Assuming that 60 per cent of average investment approvals from 2016 to 2018 are realised, this could translate to gross FDI of 120 to 130 billion ringgit this year.
The average rate of investment realisation is 60 to 70 per cent in the first 18 months, though timelines are subject to the global outlook and investor sentiment "which is tentative at this juncture", she added.