Malaysia a key beneficiary of Chinese FDI

PETALING JAYA, Malaysia - Malaysia is among the key beneficiaries of foreign direct investments (FDI) from China as part of its expansion in the region through the Belt and Road Initiative, said RAM Ratings.

The ratings house said it views the FDI inflows as being complementary to the increasing trade flows between the two countries.

RAM Ratings head of sovereign ratings Esther Lai said increased investment flows from China also served as a counterbalance against the increasingly protectionist policies of the United States, given Malaysia's open economy.

She noted that FDI was less susceptible to volatility and sentiment plays compared to portfolio flows.

"When global oil prices breached $100 per barrel in the second half of 2014, portfolio outflows were significant.

"The experience was the same during periods leading up to the US Federal Reserve's rate hikes and when Bank Negara had stopped ringgit trades in the offshore non-deliverable forwards market," she said.

Lai added that FDI from China could help sustain Malaysia's foreign reserves as the country's current account surplus is expected to remain in the low single digits as a percentage of GDP.

"Meanwhile, receptiveness to Chinese FDI has been mixed given the magnitude of the proposed projects, which has stoked overcapacity concerns.

"In this respect, Chinese projects involving resorts, retail space and residential property are viewed with some caution," she said.

The ratings house said its outlook on the commercial and residential property sectors has been negative over the past three years owing to a mismatch between supply and demand and weak sentiment.

Meanwhile, it said funding the RM55 billion East Coast Rail Link (ECRL) project through loan and debt issuances will increase Malaysia's off-balance-sheet liabilities, although at a measured pace.

The rating house's sovereign ratings for Malaysia stand at A2/stable and sea AAA/stable.

It notes that while government-guaranteed debt is hefty, repayment risk is not a major concern at the moment.

"Excluding the guaranteed debts of Khazanah, which does not receive financial assistance from the government, the maturity profile of the government-guaranteed debt comes up to a manageable RM5.2 billion on average for 2017-2021," said Lai.

The Star (ANN)

(HK Edition 09/11/2017 page7)