Political: Investors are bracing for further market jolts after Mahathir Mohamad’s surprise

victory in Malaysia’s election. Mahathir, who is 92, led a four-party coalition to end the six-
decade rule of Najib Razak’s party. Investors had been betting on Najib retaining power, and
Mahathir’s return to office 15 years after he stepped down as prime minister injects more
uncertainty into financial markets and the economy at a time when emerging markets are under
attack globally. Moody’s Investors Service said there’s lack of detail on the electoral pledges, but
some campaign promises would be "credit negative" for Malaysia. In particular, scrapping GST
without any measures to offset the loss in revenue would increase the economy’s reliance on oil
income and narrow the government’s revenue base, the ratings company said. Najib had said
abolishing the 6% GST would add 416 billion ringgit ($105bn) to the nation’s debt. Longer term,
proposed changes to education policy have an outside chance of lifting potential growth in
Malaysia, according to economists at Morgan Stanley. Mahathir’s coalition campaigned on free
tertiary education at public universities and a bigger boost to technical and vocational training.
The immediate impact of a post-election Malaysia is likely to be uncertainty. Ongoing projects
and policies face uncertainty, while the valuation of the ringgit is potentially in flux. Politically,
Malaysia is stepping into the unknown after many decades of dominance by the previous
incumbent.

Economic: Malaysia’s economy is showing resilience and is performing strongly. Growth is

running above potential, driven by strong global demand for electronics and improved terms of
trade for commodities, such as oil and gas. On the domestic front, Malaysia’s strong employment
is boosting private consumption, and investment is also helping to drive growth. Malaysia's
economy grew at 5.9 percent last year, the fastest in three years. It recorded a growth of 5.4
percent in the first quarter, which was below Malaysian Central Bank's full year growth forecast
of 5.5 percent to 6 percent this year. Nomura Research which has recently lowered its GDP
growth forecast on Malaysia to 5.1 percent from 5.5 percent in 2018 and to 4.5 percent from 5
percent in 2019 also opined that Malaysian new leader's recent moves would hurt growth. The
new government's move to quickly unwound the GST and fuel subsidy rationalization - the two
most crucial fiscal reforms to put Malaysia's fiscal position on a sustainable footing - may result
in large spending cuts of about 1.3 to 1.5 percent of GDP annually in 2018 and 2019 to keep the
country's fiscal deficit from widening sharply, according to the research house. Malaysian new
government has recently pledged to meet the previous administration's 2018 fiscal deficit target
of 2.8 percent of GDP.In addition, a majority of Malaysia’s debt is medium term, with almost
70% having a maturity period of over three years. But despite its sound economic fundamentals,
Malaysia, like most countries around the region, is struggling to attract new investment amid
rising international trade tensions. Economic Affairs Minister Datuk Seri Mohamed Azmin Ali,
however, believes that the challenge is to win back investor confidence. Speaking on the
sidelines of the launching of “Malaysia Economic Monitor – Navigating Change” by the World
Bank, Azmin said the focus of the new government is to ensure that foreign direct investment
(FDI) in Malaysia is sustained.
Social: It scrutinizes the social environment of the market, and gauge determinants like cultural
trends, demographics, population analytics etc. The indicators of social analysis of a country
involve religious factors, ethical issues, trends, history, education, demographics, health, etc.
Analyzing the Malaysian social perspective, Malaysian population consists of 60% Malay, 30%
Chinese and 10% India. Therefore it gives the country an enriched and vibrant culture. Due to
this, Malaysia has a lot of cultural festivals going on throughout the year which can be targeted
by business organization. Moreover, the consumer buying pattern of the Malaysian people is
changing. They are increasingly switching to online shopping. Therefore e-commerce businesses
can explore the opportunities in here and take advantage of a huge 28 million population base.
Furthermore, the country has a strong history which makes it an appealing tourism industry. So
business such as travel agencies will easily be interested to set up a business there. However in
Malaysia, there is a high rate of alcohol abuse. Therefore firms should be aware of the
consequences they have to face if they hire the wrong person for the job. It can hamper the image
of the company. Thereby, companies will have to be very conscious about this factor before
thinking of going ahead.

Technological: It involves innovations in technology that may affect the operations of the
industry and the market favorably or unfavorably. The factors that can have an impact in
technology are- technological development, research and development, patents, licensing,
information technology, consumer buying trends etc. In 2015, Malaysia had 20.6 million internet
users which indicates that the ICT market has strong growth fundamentals, including rising
incomes and a high tech focused national development plan. By 2018, Malaysia has an
opportunity to generate US$ 6.2 billion from the e-commerce businesses. It is enough to suggest
the changing consumer buying trends due to technology. The strong banking sector along with
good distribution networks and widespread use of credit cards is responsible for the landslide
change in consumer buying pattern. Therefore it is also creating possibilities for businesses to
cash in these sectors. Furthermore, Malaysia’s highest funded sector is the education arena and it
boosts of top universities where a lot of research and development work takes place. Therefore
new firms can exploit advantages of these R&D work and make innovations in their business.

Legal: Legal factors have both external and internal sides. There are certain laws that affect the
business environment in a certain country while there are certain policies that companies
maintain for themselves. Legal system takes into account employment laws, consumer
protection, industry specification regulations, environmental regulations and competitive
regulations. The Malaysian legal system is substantially based on the British legal system and the
principles of common law. Malaysian employment law says that the minimum wage of the
worker can be no lower than 1000 ringgit which is quite high for countries in the Asia, where
labor cost is relatively cheaper. Therefore it can have adverse effect on the Malaysian economy
as foreign investors may become concerned in investing in the country as it can increase the cost
of operation in the country. Besides, there are environmental laws such as the Division of
Environment clean air legislation which was adopted in 1978 to limit carbon emissions in the
country. To abide by this law, carbon emission industries may face externalities cost based on
the amount of pollution they are involved. This type of law will also have detrimental effects on
the foreign direct investment. Therefore investors will have to do their homework before
investing as they will have to find the best sector that suits the country accordingly to the laws of
the country.

Environmental: It includes all those that influence or are determined by the surrounding
environment. Environmental analysis is particularly important for industries such as tourism,
farming, agriculture, etc. It takes into account ecological, environmental issues, stakeholder
values, management style etc. Malaysia has one of the highest rates of deforestation in the world.
Most of the deforestation is due to the extraction of natural gases which plays a major role in the
Malaysian economic growth. Therefore over consumption of natural gases has led to destruction
of the natural ecosystem. To limit this threat, government has come up with deforestation laws.
According to it the natural gas companies will have to pay compensation for every tree cut. This
type of environmental law is helping the country to restore the natural ecosystem. It is also
sending a negative message to the investors to finance in these projects. Therefore businesses
will have to look into these environmental aspects before exploring ventures.