… We believe we are now witnessing the stage where telecommunication companies are beginning to monetize these assets.
A telecom rebound amid digital surge
Over the last decade or so, investors have generally been less keen on the telecommunications sector. Government-mandated price cuts and an increasingly competitive playing field have put pressure on revenues and share prices.
However, with the rapid expansion of the digital economy, companies in the sector are regaining some pricing power. This is partly because prices have dropped to such low levels that consumers have become less sensitive to moderate cost increases.
A notable example of this is the SEA-ME-WE 6 (Southeast Asia-Middle East-Western Europe 6, or SMW6) project. A 13,484-mile-long submarine cable system that will link Southeast Asia, the Middle East, and Western Europe, with a capacity of more than 100 terabytes per second.1
A new hub for data centers
One of the key aspects of the resurgent telecommunications sector is the growing need for data centers. In this context, Malaysia is emerging as a new infrastructure hub. Previously, Singapore had been the natural focus for data centers, but it has now reached its saturation point. Singapore even imposed a brief moratorium on new developments in 2019.2
With affordable real estate, a reliable power supply, and a robust telecommunications infrastructure, Malaysia has become a preferred destination for data centers (Table 1), boasting 107 in the country.
Table 1. Southeast Asia’s five data center opportunity index 2024
Source: Knight Frank, January 2025.
Since the end of 2023, tech giants Nvidia, Google, Amazon Web Services, Microsoft, ByteDance, and Oracle have invested $23.3 billion in building data centers in Malaysia.3 Despite US rules limiting exports of high-end computing chips, analysts still expect continued growth in data centers – albeit at a slower rate.
Malaysia’s economic renaissance
An improving domestic economy provides further support for prospects. Malaysia is a diversified economy with a strong balance sheet, and its trade within the ASEAN region is thriving. This is paired with attractive demographics, including a population under 10% of which is over 65 years old, as well as a growing workforce.
While Singapore has long been regarded as the region’s financial hub, marked by strong private-property rights and high-paying jobs, Malaysia has built significant economic connections with its neighbor, highlighted by the Johor-Singapore Causeway, one of the busiest border crossings in the world, with 350,000 travelers daily.
In the context of trade wars, Malaysia is benefiting from increased outsourcing of manufacturing that might have once been based in China. A Singaporean-British multinational technology company transferred most of its manufacturing operations to Malaysia 20 years ago, and other large companies, including semiconductor manufacturers, have followed suit. Malaysia is increasingly emerging as a small but thriving technology hub.
From an income perspective, there are clear benefits as well, with Malaysia’s payout ratio of nearly 65% – the highest in the ASEAN region.4
Capital discipline + shareholder commitment
When it comes to equity investing, we believe in targeting companies with healthy cash flows that can be readily translated into income for shareholders. While reinvesting for growth is suitable for companies in the long term, we also wish to see a disciplined approach to capital deployment.
Moreover, we believe that a company’s dividend policy can act as a safeguard for future investment decisions, ensuring checks and balances against excessive spending. If a company undertakes a poorly conceived major investment project, it can harm investor returns, including its ability to pay dividends.
Final thoughts
ASEAN’s digital economy is entering a transformative phase, with Malaysia emerging as a key hub for data infrastructure and telecom innovation. As demand for AI and data services accelerates, the region’s telecommunications sector is regaining some pricing power and investor interest. Malaysia, in particular, offers a compelling mix of economic resilience, favorable demographics, and strong dividend potential. In the country’s telecommunications sector, we’re now seeing end-user applications that look set to rejuvenate demand. When it comes to equity income investing, we believe companies with healthy cash-flow streams that are underpinned by strong competitive positions. For income-starved investors, we believe this presents a timely opportunity to tap into a sector poised for structural growth. With disciplined capital deployment and a commitment to shareholder returns, ASEAN’s digital rise could become a powerful engine for long-term equity income.
1 "TM in consortium to build new submarine cable system for Southeast Asia - Middle East - Western Europe." Telekom Malaysia, February 2022. https://tm.com.my/news/tm-part-of-consortium-sea-me-we-6-submarine-cable-system.
2 "Singapore lifts data center moratorium - but sets conditions." Data Center Dynamics, January 2022. https://www.datacenterdynamics.com/en/news/singapore-lifts-data-center-moratorium-but-sets-conditions/.
3 "Malaysia wraps up 2024 as leading data centre hub in sea with US$23 billion in investment." Malaysian Investment Development Authority, December 2024. https://www.mida.gov.my/mida-news/malaysia-wraps-up-2024-as-leading-data-centre-hub-in-sea-with-us23-billion-in-investment/.
4 CLSA – Asia Thematics, Market Outlook, 24 February 2025.
Important information
Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
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