Malaysia poised to avoid middle income stagnation with 5%+ growth

Under-the-radar Southeast Asian economy Malaysia (EWM, quote) is set to return to 5%+ growth in 2013, after slowing to a projected 4.6% this year, according to the World Bank.

Image courtesy Judhi Prasetyo:

The world famous Petronas Towers in Kuala Lumpur, Malaysia

Malaysia is currently in the midst of a transition from an emerging economy to a developed one, with the goal of officially becoming a high-income country by 2020. Thus far, Malaysia has successfully steered its economy away from the dreaded ‘middle-income trap.’

With planned investments of upwards of $444 billion into high-growth industries and necessary reforms to increase economic efficiency that also diminish government involvement in the economy, Malaysia looks poised to avoid middle income stagnation.

Although short-term reforms like an increase in the minimum wage and the implementation of a goods-and-services tax could affect the margins of Kuala Lumpur-listed companies, and marginally increase inflation in the short-term, these necessary reforms should allow Malaysia to prosper over the medium-to-long term.

Investors should look for a pull back in EWM, the best way to obtain exposure to Malaysia, then pick the ETF up at a more reasonable valuation (it may be a little rich at current levels). For investors with a long-term time horizon, EWM provides both a nice dividend — currently yielding around 4.1% — as well as access to a country with robust growth and leaders that are willing to implement forward-thinking economic reforms.


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