JP Morgan: Asean to continue attracting FDI in next 5 to 10 years

Record FDI flows to EMs Asean in 2021 reached a new high year-to-date in 2022, led by manufacturing investments such as EV, battery, semiconductor and electronics

by S BIRRUNTHA / Pic by TMRFILE

ASEAN is projected to keep attracting foreign direct investment (FDI) in the next five to 10 years, driven by the region’s supportive policies, cost competitiveness, industrial development, linkages to existing manufacturing hubs and rising middle-income consumers.

In a note today, JP Morgan said record FDI flows to emerging markets (EMs) Asean in 2021 reached a new high year-to-date in 2022, led by manufacturing investments such as electric vehicle (EV), battery, semiconductor and electronics.

The EMs Asean includes Malaysia, Indonesia, Philippines, Thailand and Vietnam.

According to JP Morgan, Asean’s share of global FDI rose from 5.8% in 2015 to 13.7% in 2020.

As such, it noted that the US government’s plans for friend-shoring should encourage further supply chain relocations into Asean.

“Over the past 12 months, we have witnessed the relocation of large-scale FDI projects involving key supply chains — namely EV batteries, parts and components to Indonesia, Malaysia and Thailand; semiconductors to Malaysia and Vietnam; Apple’s products to Vietnam and nickel mining and smelting to Indonesia.

“In our view, stronger FDIs will raise capital accumulation, bring along technological know-how, and develop labour and managerial skills.

“This would further boost the economic growth of the region,” JP Morgan said.

The investment banking company reiterated four long-term plays — namely banks with high exposure to corporates/trade, hardware/industrial goods producers that link to regional supply chains, industrial real estate and logistic services providers benefitting from increased trade flows, and consumer names exposed to rising income and discretionary spending.

Meanwhile, JP Morgan also highlighted that policy reforms and increased trade cooperation will add to the existing advantages of Asean.

JP Morgan said it has seen several key improvements this year, including tax incentives for EV production, a consistent policy push, continued commitment to improve the ease of doing business and regional trade agreements such as the Regional Comprehensive Economic Partnership and Indo-Pacific Economic Framework.

“Note, Asean also has one of the highest numbers of international investment agreements (IIAs).

“These large numbers of IIAs underscore the member states’ commitment to attracting FDI and strengthening investment relationships with partner economies,” it noted.

Commenting further, JP Morgan said Toyota Motor Corp, BYD Auto Co Ltd, Foxconn, CATL and LG Energy Solution Ltd have announced significant investments in EV assembly and battery production in Thailand and Indonesia — countries with existing auto parts supply chains, skilled labour, mineral resources and government incentives for EVs.

It added that semiconductor firms have been moving to Malaysia, with significant announced expansion plans by Intel Corp (US$7 billion), Infineon Technologies AG (US$2 billion) and AT&S (US$2 billion).

“Vietnam also saw semiconductor investments from Samsung and Amkor Technology.

“In Apple Inc’s supply chain, Vietnam is rising as a location to produce 15% of global output of iPads and MacBooks,” it said.

Malaysia had attracted a total of RM123.3 billion worth of approved investments in the manufacturing, services and primary sectors involving 1,714 projects in the first half of the year (1H22), according to Malaysian Investment Development Authority (Mida).

FDI accounted for 70.9% or RM87.4 billion of the total investments, while investments from domestic sources contributed 29.1%, or RM35.9 billion.

International Trade and Industry (MITI) Minister Datuk Seri Mohamed Azmin Ali said Malaysia is on the right trajectory to secure more high-quality, high-impact and capital-intensive projects, with the services sector being the key growth driver for the economy and the largest contributor to approved investments in 1H22.

He added that in maintaining the momentum, MITI will continue to strengthen the country’s competitiveness by developing economic complexity, nurturing a strong industrial ecosystem with innovation intensity, enhancing inclusivity by creating high-income jobs and promoting opportunities to participate in the regional and global supply chains.

“Driven by the National Investment Aspirations, we will intensify our focus towards sectors such as digital economy, electrical and electronics, pharmaceutical, chemical and aerospace with significant economic potential and sustainable long-term growth,” the minister said.