1MDB issues will not force a tectonic shift in Malaysia economic landscape - report

Issues relating to 1Malaysia Development Bhd (1MDB) will not force a tectonic shift in Malaysia's economic landscape, which is remarkably resilient coupled with strong investor confidence in the country, Global Risk Insights (GRI) reported.

It said the civil suit filed by the United States Department of Justice to recover assets derived from alleged misappropriation of 1MDB will not have large impacts in terms of investments inflow from the US to Malaysia.

"Despite ruffling some feathers between Malaysia and Washington, the case is unlikely to have a great impact on US investment in Malaysia, which has been and will remain strong," wrote Alexander Macleod in an article titled, "Assessing the Investment Climate in Post-1MDB Malaysia".

The report was published by GRI, which publishes political risk news and analysis.

Any negative outflow that does occur will be cushioned by China, which – after two Chinese firms acquired 1MDB assets – leapfrogged Japan, Singapore and the US to become Malaysia's largest investor.

As for the bigger picture, the report said it must be noted that issues of 1MDB have coincided with a global slump in energy and oil prices, causing a slowdown to Malaysia's economic growth.

It has also coincided with a global economic downturn caused by stock market volatility due to uncertainty before, during and after the European Union Referendum and Britain's decision to leave the single market.

"What is certain is that Malaysia's economy is remarkably resilient; just as it successfully weathered the 1997 Asian financial crisis, it is likely to recover from its current position," it said.

On top of signs that the ringgit is starting to recover, a recent World Bank report has forecast a Gross Domestic Product increase for Malaysia, albeit an incremental one, in 2017 – reinforced by Kuala Lumpur's solid commitment to the Trans-Pacific Partnership (TPP) trade agreement.

Malaysia's economy expanded by 4.0 per cent in the second quarter of 2016, bringing the half-year growth to 4.1 per cent. The economy is expected to grow between 4.0 per cent and 4.5 per cent for the full year.

The government has already shown signs of becoming more outwardly focused by promoting investment initiatives such as the Malaysia Promotion Programme (MPP) – a strategic, public-private partnership aimed at boosting foreign direct investment and trade with key global financial hubs.

"Although the 1MDB issue continues to dominate headlines, it will not force a tectonic shift in Malaysia's economic landscape," it said.

The country has begun to recover from last year's events, when stock markets plunged, the currency was in a freefall, and political tensions were palpable.

Prime Minister Datuk Seri Najib Tun Razak's government has overcome internal divisions to reinforce party unity at a time when foreign regulators will be probing closely into its economic and political affairs.

"Investors remain confident in Malaysia's well-developed regulatory framework, and the stock market, despite wavering, is beginning to regain its stability. For now at least, Malaysia has seen off the worst of this political and economic storm, and will seek to renew its status as an exciting emerging market," it said.