There are many factors that expatriates must take into account when considering what to invest in.
Whether you are risk-loving, or not, Malaysia has a lot to offer expatriates for work, pleasure or retirement. How much time you choose to spend in Malaysia may depend on your work schedule, family commitments and the availability of legal status as a foreigner.
All these things change and so does the risk of investing in Malaysia. When you are deciding whether or not to invest in Malaysia, as an expatriate or a local, one way to make better decisions is to look at the risk and return on investment opportunities in Malaysia in a global context.
Malaysia Country Risk
Country risk is the uncertainty associated with investing in a particular country and, more specifically, the degree to which that uncertainty could lead to losses for you as an investor. Uncertainty can come from many different factors ranging from political and economic, to health and technological influences.
A rule-of-thumb to use when assessing country risk is a global, or Asian, country risk ranking. For Malaysia the recent country risk rankings are varied and comparable to their Asian neighbours. Risk rankings are based on a variety of political, sovereign debt, perception of ethics indices and a combination of business specific factors, but how useful are they to the individual investor?
Once you have taken the decision to invest yourself, your time and your hardearned money into Malaysia as an expatriate, then you can run through the list of assets that you might like to invest in and do a global comparison for each one.
Your Time In Malaysia
Is time more precious than money? It may be, depending on whether you have a busy job or are retired. Deciding how much of your time each year to spend in Malaysia and how much to spend in the rest of the world is a good way to assess your investment risk in Malaysia as an expatriate.
With high growth rates in Asian countries and, until recently, ease of travel across Southeast Asia, Malaysia is the perfect hub from which to do due diligence on other Asian investment opportunities.
Your Investment Portfolio
Most investors, expatriate and local, diversify their investments amongst different asset classes. Malaysia offers the same, or similar, assets as most developed countries, which now includes cryptocurrency exchanges, but does that mean that Malaysia should be a large proportion of your investment portfolio? The answer to this depends on your personal investment journey.
Entry, and exit, from Malaysia may be more complicated than you may have anticipated as an expatriate. If you are a Malaysian and see your future lying overseas, in Australia, the UK or elsewhere, then Malaysia may be a smaller part of your global investment portfolio.
Short-, medium-, or long-term stays in any country does not necessarily equate to how much of your investment portfolio should be held there, but it could be an important factor. Analysing typical economic variables over time can inform your investment decision.
The first thing most visitors to a country look at is the exchange rate risk. If it is favourable, you may be pleased but it is not likely to cause you to extend your time in a country. Holidays, travel, work or living in a foreign country are usually motivated by more than one factor.
In the case of Malaysia, the valuation of the ringgit against other foreign currencies is attractive for a holiday but does it make it a good investment for the medium- or long-term? Probably not; the Malaysian Ringgit is relatively weak, compared to major global currencies, and also volatile.
Buying on dips may be good for speculation but long-term accumulation of currency in Malaysia, like many other countries, faces the risk of tightened global exchange and transfer controls.
Buying real estate in Malaysia is relatively easier for locals than for expatriates. Limits on purchase price for real estate for foreigners vary from state to state, and legal status as well. Compounding these risks, oversupply of property in Kuala Lumpur is palpable, but there are some real gems to pick up in good locations at affordable prices if you take expert, local real estate advice.
Real estate in Kuala Lumpur is no longer below global market prices but there are many, great out-of-town locations still available at a fraction of global prices.
Personal income tax and corporate tax rates are still relatively low in Malaysia. As an expatriate you can benefit from tax rates that are comparable to other neighbouring Asian countries and still below average global tax rates. A non-resident tax rate of 30% applies across Malaysia and 15% in Iskandar, Malaysia.
This compares favourably to many countries in Europe where marginal rates of tax can be 40% or higher. Any good investment advisor will tell you that there is no point in making 100% if you have to pay 40% of it in tax. It also leaves you more to invest from your Malaysian income.
Bank fixed deposit interest rates in Malaysia are still competitive, at more than 2% per annum, whereas globally interest rates can be as low as 0.1%. If you have built up a significant amount of savings, holding them in a riskless bank account in Malaysia could be a good investment in these turbulent times.
Then there are higher interest saving options such as the EPF for salaried expatriates where annual interest rates, although variable in recent years, was a relatively attractive 5.2% per annum in 2020, with easy access to withdraw funds.
Crypto exchanges are nascent worldwide and Malaysia also has four regulated digital asset exchanges, namely Luno, MX Global, SINEGY and Tokenize. There is currently no capital gains tax on cryptocurrency profits in Malaysia, making it an attractive location to buy, hold and sell Bitcoin, Ethereum and other cryptocurrencies compared to other countries.
If you are smart (and lucky), you may be able to realise large, speculative profits when you buy and sell cryptocurrency assets in Malaysia then invest for the longer term.
Exit from Malaysia may prove more difficult than you may expect, so do your homework and be prepared to face changing rules and regulations just like most other countries. A smart expatriate should think twice before he, or she, or they, make a long-term investment decision in Malaysia.
One key country risk assessment that should be done before making an investment decision in Malaysia is your ability to transfer currency for foreign payments, or other uses. Such a country risk assessment involves weighing and assessing a variety of factors and potential, unforeseen future changes. If you are planning to retire in Malaysia, and never leave, then the only real risk is your inheritance. Due to the Covid-19 pandemic, and other factors, even this long-term view may need to be reassessed.
A key question locals may ask you as an expatriate in Malaysia is ‘What are you doing here?’ It’s a good question, so why not ask yourself, as an expatriate investor, ‘What am I doing investing here?’ A good way to answer this is to put your Malaysia investments in a global context, then take it from there.
Article by: Dr. Jonathan Di Rollo (PhD Econ)
First published : Smart Investor Issue 369