I am reading the biography of Morris Chang (the founder of TSMC, the world biggest semiconductor manufacturing company), and this quote (in Chinese) caught my eye:

Translating into English and in simple words, Morris Chang was saying (in 2001) that in the old economy model, a country’s competitive advantage were based on 4 factors:

1. Natural Resources;

2. Educated Human Resources;

3. Capital; and

4. Technology.

However, technological advancement and globalisation have significantly reduce the importance of capital and natural resources, i.e. synthetic material can replace natural resources and capital is abundant.

Hence in today’s economy, a country’s competitive advantage are heavily reliant on 2 factors only: Innovation capability (Technology) and Risk-taking talent (Human Resources).

Sadly, Malaysia do not have both.

The problem with Malaysia economy

Historically, Malaysia has been heavily reliant on natural resources, from rubber and tin (1880-1960), to palm oil and petroleum (1960-today). In 1972, Intel entered Malaysia to maximise Malaysia’s cheap labour and Mahatir further doubled down on this cheap labour + industrialisation strategy (1985-1997).

Then Asian Financial Crisis happened, Malaysia adopted a protectionist policy by ignoring IMF’s request for reform, implemented capital control to protect many local business from bankruptcy, and pegged RM to USD at RM3.80/USD.

Because of these protectionist policy, most Malaysia business dont need to innovate and compete in the global market. They succeed because of “connections”, creating many billionaires that can only compete in Malaysia’s 34 million population economy.

The spirit behind these protectionist policy and “connections” last until today. Private businesses stop investing for the future because capital and opportunities were only for the “selected few”.

Malaysia did recover after Asian Financial Crisis, mainly because of commodity boom boosting our economy that was heavily reliant on natural resources.

On top of that, our economy shifted from industrial to a service-based economy. Malaysians start to spend on services, real estate and consumer spending. Basically Malaysia are behaving like wealthy nations (spend on consumption) when we are not yet wealthy nations.

All of these historical context resulted in 3 structural weakness in Malaysia economy:

1. Private business not investing for the future → Low value chain business

2. Malaysia stuck in low value chain business → Lower income growth

3. Low income growth → Talent loss to high-income countries

Since Covid, inflation has been growing faster than income growth, driving up cost of living and Malaysians start to feel financial pressure. When you dont have enough, the easiest method to cope is to borrow money.

These structural realities are sad and worrying, but it also gives us a guide on how to invest in Malaysia. 3 investment areas that we can explore:

1. Consumer stocks

2. Financial Services

3. Plantation

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