Investing in Malaysia and my take on the Stock Market Falls
Stock-Markets / Emerging Markets Mar 15, 2007 - 09:03 AM GMT
I'm writing to you from the 33rd floor of the Kuala Lumpur Hilton, in the capital and largest city of Malaysia. One of three main Malaysian territories, metropolitan Kuala Lumpur is home to 6.9 million of Malaysia's 26.6 million citizens.
I've been here in the city, which locals call “KL,” for three days. Let me sum up what I've observed: KL, and Malaysia in general, are hotter than hot! And I don't mean just the weather, which is 97 degrees and humid. I'm talking about the country's economy.
Chic, vibrant, youthful, exciting, buzzing — those are just some of the words I'd use to describe the scene here. Like other Asian cities, KL is a melting pot. There are people of original Malay descent, along with Chinese, Indians, and other indigenous ethnic backgrounds.
Islam is the predominant religion in Malaysia.. As I walked around the city, I saw devout Muslims chatting on their cell phones, working wirelessly on their laptops, and shopping for luxury Western goods in droves. From Louis Vuitton to Harry Winston Jewelers, the luxury shops of the famous Golden Triangle shopping area in KL are jam-packed seven days a week.
Another thing that really caught my attention: Almost everyone here speaks English, largely due to the British occupation from 1795 to 1957, after which the independent Malaysia was formed. This widespread use of English is a huge plus, especially when you put it into the context of economic growth.
The country's largest industry is manufacturing, which accounts for 30.7% of the economy. Malaysia boasts booming auto manufacturing businesses, vibrant furniture factories, and thriving electronics and semiconductor chip makers.
Tin and base metals account for another 15% of the economy, and the country's financial services industry now comprises another 16%. Other important areas are agriculture (palm oil and rubber), trade, construction, and tourism.
Malaysia's economy expanded at a very healthy 5.9% last year, more than twice as fast as the U.S. economy. With only $39 billion in gross domestic product, the country is tiny by comparison, but its GDP looks set to keep soaring in the years ahead. Foreign direct investment in Malaysia is also exploding higher, reaching a record $5.7 billion in 2006, up more than 12% from 2005.
Why Malaysia Will Be One
Of the Fastest-Growing Islamic
Economies in the World
Malaysia clearly has an economic advantage because of its vast natural resources in agriculture, mining, and oil. It also has strong roots in British law and that large English-speaking population that I mentioned.
But Malaysia has another unique advantage that I believe will help push its economy ahead at solid growth rates for several more years: It is home to the largest Islamic capital markets in the world!
The Malaysian government has always been sensitive to the Islamic religion, and, unlike many other Muslim countries, it has kept the religion's principals in mind when it comes to monetary matters.
Case in point: Malaysia is the first Islamic country to have its own Islam-based stock exchange, the Bursa Malaysia Berhad. This subset of the country's main stock market was launched on March 18, 2005.
The exchange lists equities, derivatives, and offshore markets — but only those that adhere to Islamic tenets. For example, companies cannot actively seek revenues from interest income, gambling, life insurance, tobacco, or alcohol.
In short, Malaysia has done what no other country has done — accommodated the tenets of Islamic law in its economy and its stock market by setting up separate listings. These companies allow the devout to invest with a conscience and help foster the Islamic economy.
This Malaysian system wouldn't work in many other areas of the world. But it gives tens of millions of Muslim investors a unique solution to today's rapidly changing financial markets.
There are over 1.5 billion Muslims in the world today, representing 24% of the world's population. Key developments like Malaysia's Bursa Berhad help to bring them into modern society while addressing their religious needs.
My view: Malaysia's economy is poised for loads more growth in the years ahead. Its stock markets have recently pulled back, and now look very attractive to me.
Meanwhile ...
My Signals for U.S. Markets Remain In Sell Mode!
Please don't get me wrong ... I love the U.S. But I'm also a realist, and today's economic growth is not going to be found in the States.
Indeed, as I noted two weeks ago, the U.S. economy seems headed for a recession. It's been floating on a magic carpet ride for the past three years, via artificially low interest rates, strong real estate prices, and blind optimism.
I also told you that my indicators strongly suggested a Dow close below 12,242 — which we got on February 27 — would be an important sell signal, indicating the potential for further sharp declines in many U.S. stocks.
We saw another wave of selling on Tuesday, but I don't think that's the worst of it. Don't be complacent! I fully expect that there are more waves of selling ahead. I continue to like many natural resource stocks, but many other U.S.-based companies look vulnerable to additional sharp declines.
Best wishes,
By Larry Edelson
P.S. Continue following my recommendations in Real Wealth Report . If you're not yet a subscriber, you can join now and get a one year subscription for just $99 . The important March issue goes to press this Friday. Get on board for a full update on why I think you must own gold!
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