Trump’s administration will boost foreign direct investment and Malaysia’s export potential

Donald Trump’s re-election is likely to accelerate China Plus One, benefiting Malaysia through increasing investments and export possibilities in electronics, machinery, and palm oil.

CIMB Securities senior economist Vincent Loo said that Trump’s return to the White House would lead to higher tariffs and protectionist policies, including a 10% tariff on all imports and a 60% tariff on Chinese goods.

“With escalating US-China trade tensions, Malaysia could see increased export demand from US companies looking to source products outside China, creating export growth opportunities in high-value sectors,” he wrote today.

According to Loo, Malaysia is becoming a competitive destination for foreign direct investment (FDI) as corporations seek reliable industrial bases in Asean due to its infrastructure and cheaper production costs.

“However, renewed trade uncertainty may lead to risk-off sentiment in financial markets, prompting investors to seek safe-haven assets, strengthening the US dollar and boosting capital outflows from emerging markets like Malaysia,” he added.

He observed that higher taxes on Chinese imports may cause US corporations to source from Malaysia, increasing demand for Malaysian semiconductors and electronic components.

If trade tensions rise, demand may fall, reducing US and Chinese exports. Loo said Malaysia’s machinery and appliance exports will benefit as the US seeks alternatives to Chinese products, like E&E exports.

He said higher tariffs and trade obstacles could boost costs and lower global trade demand, affecting Malaysia’s trade volume.

Loo noted that Trump’s “America First” energy policy, which prioritizes US production, could cut global energy costs, lowering Malaysia’s mineral fuel exports.

CIMB Securities estimated Malaysia’s GDP at 5.2% for 2024 and 5% for 2025, although trade volatility and foreign exchange swings may raise its export-import outlook.

“We continue to expect an external demand recovery driven by the global tech upcycle, as well as strong domestic spending supported by robust investments and resilient consumer spending,” added Loo.
He said the ringgit may see short-term volatility, but it depends on US Federal Reserve policy.
Hong Leong Investment Bank (HLIB) said the China Plus One strategy would benefit Malaysia’s electronic manufacturing services sector as brand owners shift or diversify their manufacturing from China, while increased FDI to Malaysia would benefit construction, industrial property, and real estate investment trust.

It also predicted more economic fluidity and market volatility under Trump’s aggressive “shoot from the hip” attitude. Malaysia benefited from the US-China trade war, so this isn’t all negative.

However, the biggest risk this time is if he drags the world into it with his planned blanket 10%-20% tax – the US was Malaysia’s third largest export destination in 2023 at 11.3%. The investment bank maintains its end-2024 FTSE Bursa Malaysia KLCI objective of 1,700.

“Our investment themes on tourism recovery, energy transition, Johor’s developmental reinvigoration, and disposable income boosting measures should be fairly insulated after the US election, while trade war beneficiaries may see renewed interest,” said HLIB.