Malaysian reinsurer highlights key themes for public markets investing
Malaysia’s strong stock market presents attractive investment ideas for institutional investors, as the impact of supportive government policies over the past few years kicks in and economic growth improves.
“Government policies put in place over the past two to three years are bearing fruits,” said Durraini Baharuddin, group chief investment officer at MNRB Group, a listed reinsurance company in Malaysia.
She made the comments during a panel discussion at AsianInvestor’s 3rd Malaysia Global Investment Forum in Kuala Lumpur on October 8.
She noted that investors are showing higher interest in Malaysian equities, especially since they have performed quite well this year.
The expectation is that equities will continue to perform well in the medium term.
While the focus of investing will be bonds, MNRB is eyeing allocations to local equities, said Baharuddin.
MNRB
“In asset allocation [this year], we might focus on Malaysian equities which will probably yield some good returns and enhance portfolio returns, especially for insurers [and reinsurers] who focus on the Malaysian market,” she said.
She noted that there has been "a trickle-down effect from government policies," via spending power and infrastructure build-up, boosting the appeal of local equities.
SECTORS TO WATCH
One of the key sectors that is a natural beneficiary of buoyant economic growth is banking, which accounts for about 30% of the equity benchmark, she said.
The main equity index tracked in Malaysia is the FTSE Bursa Malaysia KLCI Index, which is tilted towards bank stocks.
Investors are betting that with stronger-than-expected growth in Malaysia’s GDP, banks, as a proxy for economic growth, will post strong earnings.
“Loan growth in the banking sector has grown faster than anticipated, close to double digits, and is driven by policies that were announced in the past two years,” Baharuddin added. “The banking sector has seen a strong rally.”
Other panel speakers estimated that Malaysia’s GDP could top 5% and inflation will hover around 2%, with both trends continuing into next year.
Supportive policy actions under the Madani Economy framework, a 10-year plan which includes the New Industrial Master Plan (NIMP) 2030 and the National Energy Transition Roadmap (NETR) have provided tailwinds in the short to medium term, they said during the panel discussion.
The benchmark equity index has climbed about 17% this year, a strong rebound for a market that suffered steep declines until a few years ago.
Baharuddin believes the equity rally has more legs to run.
“We don’t think [the rally is over] so because when investors look for opportunities in Malaysia, they are also looking for liquid positions. Banks remain an important beneficiary of any policies the government will announce in strengthening the fiscal position and growth of the country.”
Utilities is another area of interest, Baharuddin said, offering the example of Tenaga Nasional.
“Malaysia’s biggest player, Tenaga Nasional Berhad, is a foreign investor darling, and it has taken concerted efforts to reduce reliance on fossil fuels and get closer to 40% renewable energy usage.”
This also makes the company a sustainability/transition play for investors, she added.
Tenaga Nasional is Malaysia’s largest public-sector electric utility company and its stock is up 45% this year. It currently trades at around MYR14.54 ($3.37).
Kuala Lumpur on October 8.
INFRA, HEALTH
Another interesting investment play is infrastructure construction.
“It is expected the government many announced up to MYR90-100 billion ($20-23 billion) in terms of development spending from this upcoming budget,” Baharuddin said.
“That is critical spending on transit systems such as trains, roads and highways. While not in the ‘sexier sustainability’ category, they will still definitely get a lot of attention from investors.”
Budget 2025 is expected to be unveiled on October 18.
Healthcare is another area expected to do well in Malaysia.
“The strength of corporate Malaysia has allowed spending in healthcare in private hospitals, reducing reliance on public hospitals. I think the foundation for this to continue is already there,” she noted.
Malaysia’s medium-term health expenditure growth will be among the fastest in ASEAN [Association of Southeast Asian nations] region, according to a June report by BMI, a Fitch Solutions company.
BMI believes that supported by double-digit increases in the government’s healthcare budget in 2023 and 2024 alongside continued advancements in the private sector, Malaysia’s health expenditure will grow by a compound annual growth rate (CAGR) of 8.3% between 2023 and 2028, with public expenditure growing by 8.5% and private expenditure by 8.1%.
GREEN ENERGY
Other panellists also weighed in on interesting sector plays.
Renewable energy could be an interesting theme over the next six to nine months, according to Sedek Jantan, head of investment research at UOB Kay Hian Wealth Advisors, who spoke on the same panel.
UOB Kay Hian Wealth Advisors
He believes the sector’s appeal will come from linkages to soaring data centre demand and the government’s National Semiconductor Initiative, which is a plan to attract at least MYR500 billion ($107 billion) in investment for its semiconductor industry.
“While data centres have been in play for the past six months or so, we now need to consider the data centre ecosystem or supply chain and what it can do for other related sectors.
"One of the other sectors is renewable energy,” he said.
Malaysia's semiconductor industry is experiencing a boom, with large European and US companies establishing new facilities or expanding existing ones, according to The World Economic Forum.
The government has also shown support for data centre investments through initiatives like Tenaga Nasional Berhad’s (TNB) green lane pathway.
This green lane facilitates an exclusive pathway for the market to provide efficient and environmentally responsible solutions for data centre operators, a JLL report published in June noted.