2018 was a year of change for Malaysia. In an unexpected turn of events, 92-year-old former Prime Minister Dr. Mahathir Mohamad secured an extraordinary election victory by ousting his former party, the United Malays National Organisation (UMNO), which has dominated Malaysia ever since their independence more than 60 years ago. After years of corruption under former Prime Minister Najib Razak, the Malaysian electorate voted for change.
Dr. Mahathir is now promising a thorough clean-up of the political and economic system. The first order of business is to remove the most corrupt practices of the previous regime and to restore institutional integrity. The day after the election, groups of businesses benefiting from their relationship with former ruling government saw a quarter of their market cap wiped out as their licences to operate were questioned.
The direction of government policies is not completely clear, but appears positive, with the public demanding greater accountability from the elected government. Time will tell if we see lasting reforms.
In Malaysia, we met with Public Bank. They have a fantastic SME franchise, which they built by focusing on service and long-term relationship building. It also has a large mortgage loan book, particularly for owner-occupied properties, avoiding speculative property purchases. While mortgage penetration levels are relatively high compared to neighboring nations, the household formation is still growing and there continues to be increasing demand for home purchasing. We like that the bank considers ESG risks as part of their lending criteria and has been investing wisely in IT, particularly in the area of cyber security. Their approach of building long-term trust with customers while avoiding risky assets should continue to benefit Public Bank and its shareholders.