KUALA LUMPUR (Sept 21): UOB Global Economics and Markets Research (UOB Research) is keeping its 2021 forecast for approved investments in Malaysia at RM185 billion, as it expects investor sentiment to pick up in the fourth quarter.

This optimism is underpinned by its anticipation of a further reopening of the economy, with the country expected to have its adult population fully vaccinated by year end and with the pandemic situation in the country entering the endemic phase by then, according to UOB Research's note on Tuesday.

It is also premised on more stable domestic politics with the memorandum of understanding (MOU) on bipartisan cooperation signed between the government and Pakatan Harapan (PH) opposition leaders, and continued expansion in the global economy.

In the first half of this year (1H21), Malaysia’s total approved investments increased by 69.8% to RM107.6 billion, from RM63.3 billion in 1H20. The strong year-on-year gain was partly due to a low base effect, as 1H20's performance was weighed down by the first Covid-19 outbreak across the world last year.

The rebound was helped by an improvement in the foreign direct investment (FDI) and domestic investment approvals, UOB Research noted. FDI shot up 214.9% y-o-y to RM62.5 billion in 1H21, making up about 58% of total approved investments, while the remaining came from domestic investments, which grew 3.6% y-o-y to RM45.1 billion.  

However, total approved investments fell on a quarter-to-quarter basis, no thanks to the re-introduction of the nationwide lockdown in mid-May and the entire month of June. Consequently, Malaysia’s total approved investments contracted 66.5% q-o-q to RM27 billion in the second quarter (2Q21), compared with RM80.6 billion in 1Q21.

In 1H21, a large bulk of FDI approvals was channelled into the manufacturing sector, UOB Research noted, which accounted for RM58.2 billion or 93.1% of total FDI approvals. Top three leading sources of FDI in the manufacturing sector were Singapore, South Korea, and the Netherlands, accounting for a combined RM53 billion or 91.1% of total approved FDI in the sector during 1H21.

Some notable FDI projects approved in 1H21 included a South Korean renewable investment to produce copper foil for electric vehicles (battery manufacturing); a South Korean company’s solar grade polysilicon plant expansion in Samalaju, Sarawak; China’s solar energy project approved under the PENJANA scheme; and a RM8.5 billion investment from Austria headquartered company to produce high-end printed circuit boards and substrates for semiconductors in Kulim High-Tech Park that targets to begin construction of the plant in 2H21.

Apart from RM58.2 billion manufacturing investment from FDI, RM8.8 billion were sourced from domestic investment approvals.

With that, the electrical & electronics (E&E) industry gained the highest approved investment value within the manufacturing sector in 1H21, accounting for RM47.1 billion. This was followed by fabricated metal products (RM5.1 billion), chemicals & chemical products (RM3.8 billion), food manufacturing (RM3.7 bIllion), and rubber products (RM3.6 billion), noted UOB Research.

These five industries made up 94.6% of total committed investments in the manufacturing sector.

By state, the key recipients of approved manufacturing investments were Kedah, Selangor, Sabah, Perak, and Johor. These five states collectively contributed 88.7% or RM59.4 billion to overall manufacturing investment approvals.

UOB Research also noted that total investments approved in the service sector recorded a 28.9% y-o-y increase to RM34.1 billion in 1H21, accounting for 31.7% of total approved investment during 1H21.

Service sector’s investment was led by domestic investments worth RM31.9 billion, while the remaining RM2.2 billion were FDI. The real estate sub-sector remained the largest contributor with RM14.9 billion, recording a 20.6% y-o-y increase.

Following the easing of restrictions on economic activities, other sub-sectors also witnessed improved in the investment, with financial services surging 243.1% y-o-y to RM6.4 billion, support services rising 3.4% y-o-y to RM2.7 billion, and distributive trade jumping 395.2% y-o-y to RM1.9 billion.

Hotel and tourism also rebounded strongly with a 191.5% y-o-y increase to RM1.6 billion, while transport services expanded 351.7% y-o-y to RM500 million, and global establishments rose 218.6% y-o-y to RM300 million; education services gained 120.1% y-o-y to RM 90 million.

Primary sector investment approvals improved by 1,276% y-o-y to RM6.5 billion in 1H21. These investments were primarily driven by domestic sources with a total amount of RM4.4 billion or 66.9% of the total, while foreign investments contributed RM2.2 billion or 33.1%.

The mining sub-sector continued to lead with approved investments of RM6.4 billion, followed by plantation & commodities (RM79.8 million) and agriculture (RM11.5 million) sub-sectors.