THE US-China trade war which started last year is intensifying, and economists say local companies are adopting a wait-and-see attitude in response to the crisis.

The trade war is the main issue affecting local investors’ sentiments at the moment, said Phillip Capital chief strategist Phua Lee Kerk.

Other factors compounding their investment decisions are low salaries and the change in government, which is still trying to find a stable grip on the economy, all of which makes it difficult for domestic players to plan ahead.

“With the US-China trade war, if a Chinese company enters the market, we cannot compete. That is another problem.

“If they are only looking for business partners, then that is fine, but if they are setting up shop, then can we compete? So everyone is still monitoring,” he told The Malaysian Insight.

On the expected slowdown of the manufacturing sector in the third quarter this year, the economist said this is likely also caused by present uncertainties, with local companies unable to plan ahead.

On the increase in foreign direct investment in the first quarter of the year, Phua said it might be due to companies looking for new markets to invest in during this uncertain time and is nothing to celebrate about.

He also said the 10-straight weeks of recorded foreign investment outflow from the Malaysian stock market had not inspired confidence among local investors.

Phua said foreign markets are also more attractive, causing local players to invest in stocks and bonds abroad.

“When there was no Internet, people could only invest in the local market. But now, if foreign markets are more attractive, that is where they’ll put their money in,” he said.

Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) executive director Lee Heng Guie said the government should act to prevent the local investment market from shrinking any further, such as implementing the National Investment Framework recommended by Bank Negara.

Lee said approved local investments have dropped for four straight years since 2015, from 2014’s RM175.1 billion to 2018’s RM121.2 billion, an average reduction of 8.8% per year.

He is worried that local investments will also reduce, which will negatively affect Malaysia’s growth and its efforts to create high-income jobs and increase exports.

Lee also told The Malaysian Insight that investments in several critical sectors have also declined, including a drop of 10.5% in the service sector, a 2.3% reduction in the manufacturing sector and 9.1% in the primary industries sector.

According to Bank Negara’s latest figures, local private investments had only grown 0.4% in the first quarter of the year, a record low.

Lee said the private investment sector’s decline shows that investors are being cautious over uncertainties caused by external factors, and the local market is still adjusting to the new government’s policies.

He suggested that the government scrutinise factors that may affect investment decisions, including the economy, the investment market, local investment uncertainties, capital cost, profit and others to encourage more investments. – May 24, 2019.