Macroeconomic Shocks and Economic Performance in Malaysia: A sectoral analysis

COVID-19, the Russia-Ukraine War, inflation, contractionary U.S. monetary policy, and other shocks have buffeted the world economy. To examine how these shocks impact Malaysia, this paper examines how they affect Malaysian sectoral stock returns. The results indicate that inflation, U.S. monetary policy, exchange rates, and other macroeconomic variables are exerting second order effects on Malaysian industries. The paper then compares the performance of sectoral stock returns during the three and a half years since the pandemic began with returns forecasted based on five macroeconomic variables. The results indicate that industrial metals and banks are performing well. Food producers, healthcare providers, medical equipment suppliers, tourist-related companies, and semiconductor firms are suffering. This paper considers several policy steps that could help firms in hard-hit sectors to recover and be resilient. These include encouraging exports of tropical fruits and halal foods and promoting medical tourism. In addition, attracting foreign direct investment (FDI) to facilitate learning and progression to sophisticated segments of the electronics value chain would increase firms’ robustness. Seeking inbound FDI is important now as multinational corporations attempt to diversify out of China and as countries seek to friendshore their semiconductor supply chains.