Financial advisers recommend investing with foreign securities, because they are generally considered meaningful diversifications to an investment portfolio. Malaysia for one, has been drawing attention as a country worth looking into when seeking for a potential source of foreign investments.
Last March 31, the country’s Central Bank Governor announced with optimism that they project economic growth of 6% to 7.5% this year. Currently, strong external demands spurred by the government’s ongoing vaccination programs have been driving recovery from the 5.6% contraction in 2020. In a virtual press conference, Malaysia’s CB Governor, Nor Shamsiah Yunus, said that the nation’s gross domestic product (GDP) is well on its way to attaining pre-pandemic levels in as early as mid-2021.
Nonetheless, despite such pronouncements, financial advisers would recommend limiting investment exposure in foreign securities to between 15% and 25%. Decisions to underpin one’s investment portfolio with overseas securities require careful assessments of the risks that could affect the investment climate of a country. While analyses include assessing offerings of stocks, bonds, exchange-traded funds (ETFs) and/or mutual funds, it’s also important to assess the country risks that are inherent to a nation as they could easily lead to unexpected investment losses.
What Does Country Risk Denote?
Country risk pertains to the potential threats or dangers that can affect the economic, business and political stability of a specific country. The threats pose as uncertainties that could impact the various studies and metrics used in determining the viability of investing in a country, such as independent sovereign credit ratings and risk reports.
An Example of a Study Conducted in Determining Malaysia’s Country Risk
Coface a global credit insurance company widely reputed as a leading expert in trade risk, provides a map of country risk for about 200 countries. The Coface 4th Quarter Report for 2020 includes a country risk assessment of Malaysia, which stated that the nation’s political and economic outlook is somewhat shaky, while the business environment is relatively volatile.
Nonetheless, while such outlooks do not eliminate the possibility that they can affect the payment behavior of corporations, Coface’s analysis is that the probability of corporate payment defaults is still at an acceptable level.
Coface rated Malaysia’s business climate as relatively GOOD (A3), partly because corporate financial reports are generally reliable. Still, the 4th quarter report took note of certain shortcomings in debt collection, formal organizational structures, rules and informal practices, as they could cause occasional difficulties in intercompany transactions in an otherwise secure business environment.
While assessing country risk is an important preliminary step in deciding whether to invest in a country, choosing the right investment broker is just as critical. In Malaysia today, licensed financial market intermediaries offer an online trading platform that both local and overseas retail investors can use in investing in Malaysian stocks, ETFs and even Real Estate Investment Funds (REITFs).
Rakuten Trade, the first fintech to have received a license from the Securities Commission of Malaysia, to operate a fully developed proprietary online trading platform, often receives favorable feedback in rakuten trade reviews. Still, financial advisers recommend that before deciding on one, it would be best to make a study of the features, fees, amenities and customer service support not only of one, but also of other Malaysia-licensed online trading platforms.