Malaysians investing abroad more Anil Netto

More Malaysians are investing abroad than foreigners investing in Malaysia, the country’s balance of payments figures indicate.

Financial Account	RM million	Q3/09	-11,078	-24,198
Direct Investment Abroad	RM million	Q3/09	-13,283	-8,964
Direct Investment in Malaysia	RM million	Q3/09	3,565	863
Portfolio & Financial Derivatives – Net	RM million	Q3/09	18,580	-9,933
Other Investment – Net	RM million	Q3/09	-19,939	-6,163

IMF-style classification of the “Financial Account” of Malaysia’s Balance of Payments - Source: Bank Negara. Figures in the middle are for the third quarter of 2009, compared to the second quarter (far right column). All figures in RM million.

Malaysians invested RM13.3 billion in stakes in companies abroad while foreigners invested RM3.6 in Malaysian firms.

Portfolio investments appear to have returned in a big way in the third quarter – but has the impact been felt in the country? Is this just a return to emerging markets as a result of the low-interest regime in developed nations as part of their stimulus packages?

The ‘Other Investments – Net’ figure shows an outflow of RM20 billion, which is interesting:

“The other investment item is a residual category that includes all financial transactions not covered under direct investment, portfolio investment, financial derivatives or reserve assets … Other investment can be further subdivided into (i) trade credits, (ii) loans/currency and deposits and (iii) other assets/other liabilities.” (European Central Bank)

The negative figure (in ‘Other Investments – Net’) may be due to bank loan repayments by Malaysian residents to foreign banks or it could be due to Malaysian banks giving out loans to foreigners.

Petronas transactions could also affect the financial account.

Another possibility: the Malaysian Insider reports interest among Malaysians in foreign property has picked up:

Interest in foreign properties has surged among Malaysians thanks to favourable investment conditions at the destination countries, coupled with uncertainties on the domestic front.

… the Australian Trade Commission says Malaysians invested about A$4.9 billion (RM15.3 billion) in Australian property in 2008.

The amount invested in overseas property also suggests a continuing trend of brain and money drain from the country, as those who can afford to purchase property in Australia and UK tend to be educated and skilled and many do so with an eye on migration, either for themselves or for their children. It also contributes to the outflow of capital from Malaysia, which has exceeded inflows for the past decade.

Now, where would purchases of property abroad show up in the Balance of Payments? Under ‘Other Investments – Net’?

Says blog reader Ganesh:

This is where the bulk of the money is moving. Mind you these are merely official figures. We all know that people just fly direct to Australia and UK and buy (property) direct there.

It runs into billions, thus an opportunity cost to Bursa….

Could this partly explain why the younger crowd are now shunning the Bursa?

The larger question is, why aren’t more Malaysians investing locally in small- and medium-sized businesses to create a more sustainable, self-sufficient local economy which is less influenced by global market volatility?