While some analysts warn that it could turn investors away from Malaysia, others are unperturbed.
Prime Minister Anwar Ibrahim has been particularly vocal about Malaysia’s objection to the Israeli response to the Hamas strike on the Jewish state on Oct 7.
Many Malaysians have also responded by staging demonstrations in support of Palestine.
Latest reports said the death toll from the Israeli offensive has risen to 15,000, out of which more than 6,000 were children and another 4,000 were women.
Political analyst Oh Ei Sun said potential investors would undoubtedly take note of and remember Malaysia’s stance in their investment decisions in the coming years.
“Taking (such) an outspoken stance on a polarising issue will typically incur costs,” Oh, who is with the Singapore Institute of International Affairs, told FMT Business.
“Hopefully, we can afford to bear the costs.”
He said many foreign and domestic investors are already looking favourably at Vietnam and other emerging nations that do not take on such issues.
“It would be natural for investors, who may also have their own stance on these issues, to look even more favourably on those other markets,” he said.
Not to worry
However, two analysts agree with Anwar’s standpoint that Malaysia’s position on the conflict will have little to no impact on FDIs.
Research institute Bait Al-Amanah analyst Yugendran Sivakumaran said Malaysia’s position in Asean makes it a critical investment hub.
“Overlooking Malaysia would be unwise given that the nation’s 5% year-on-year growth in household expenditure in 2023 will carry on to 2024,” he told FMT Business.
He said the lower land and labour costs compared with Singapore also make Malaysia an ideal location for global businesses to set up their headquarters.
Malaysia is strategically located on the Strait of Malacca and it has a pool of skilled labour and better infrastructure compared with Thailand or Vietnam, he said.
“Malaysia also offers numerous incentives for foreign investors, making it unwise for them to look away,” he said.
Nonetheless, Yugendran said it would be wise for Malaysia to widen its choice of investors to lower the concentration risk.
Jeniri Amir, a fellow at the Council of Professors, said Malaysia has been supportive of Palestine since Dr Mahathir Mohamad was in office in the 1980s.
Mahathir himself has asked Malaysians to boycott products linked to Israel.
He argued that social and political stability are what matter when investors evaluate a country for investment.
“The socio-political climate in Malaysia is very stable. That will give confidence to the foreign investors,” he told FMT Business.
Anwar has given Malaysians the assurance that voicing support for the Palestinians would not affect Malaysia’s relations with its US and European investors.
He cited the RM347 billion in new investments secured from the US as proof that foreign investors still look at Malaysia favourably.