The Malaysia ETF has gone through a rough patch in 2013.
Political uncertainty in the initial phase, and then the expected
cease of cheap dollars on the 'Taper' concern as well as
slow-but-steady growth in the U.S. against a relative slowdown in
emerging markets -played a big role in upsetting the country.
The World Bank also
its growth forecast for the Malaysian economy in early October
to 4.3% for 2013 and to 4.8% for 2014. Prior to this, the
World Bank trimmed its Malaysian forecast to 5.1% from 5.6% in
late-July, citing current-account woes first time since 1997.
However, the scenario seems to have taken a turn just before the
New Year. This is evident from the pretty decent economic scorecard
posted recently by the third largest Southeast Asian economy (read:
Malaysia ETF Surges on Election Result
Export Boom Grabs Attention
Malaysia's exports jumped 9.6% year over year in October against a
forecast of 6.1% growth thanks to the recovery in its major trading
partners - China, ASEAN, Australia, the European Union, Hong Kong,
Korea and India. October numbers - representing a five successive
month of expansion - went up 6.1% sequentially.
Import growth (13.9%) in the month-under-review more than doubled
from the economists' expectation. This was driven by increases in
imports of intermediate goods which should give another boost to
the exports in the final two months of the year.
Exports comprise more than half of Malaysia's GDP thus becoming
instrumental in driving economic activity. The nation's
FTSE Bursa Malaysia KLCI Index
climbed to a record high following the export data release.
The country's trade surplus remains steady. Malaysia is one of the
only countries in Southeast Asia that has a decent current account
balance at present. Though many had expected the country to fall
into a deficit trap due to poor exports earlier this year, Malaysia
narrowly escaped that and is now comfortably in the surplus zone.
GDP Picture 'Not-So-Bad'
Malaysian GDP growth speeded up to
on a quarter-on-quarter basis in Q3, up from 1.4% recorded in Q2.
Improvement in private investment coupled with the surge in net
exports aided the economic output.
This trend should continue even in the final quarter of the year as
the country fared better in terms of industrial production in
October, with 1.7% year-over-year and 0.7% sequential growth.
Notably, economists expected the industrial activity to slump 0.8%
The government is also implementing a goods and services tax to
reduce the fiscal deficit. The country's finance ministry issued
in late October which assumes 4.5-5% economic expansion this year
and 5-5.5% in the next. No matter how the economy is rolling, the
GDP growth expectation is surely better than many developed nations
as well as developing ones in the region too.
Decline in Debt-to-GDP Ratio
A much alarming component in the Malaysian economy was a high debt
to GDP ratio, be it on government (~50% in 2012) or household (~80%
in 2012). Some even believe that this sky-high credit level is
Malaysia's economy to grow around 6% range in the recent years.
However, the nation progressed on this front as well, though a
little bit. The rise of the household debt-to-GDP ratio fell to
in Q3 from 3.2% in the preceding period thanks to the central
bank's measure. Also, as a relief, the amount of non-performing
loans remains low among household indebtedness (read:
Time to Buy the Top Ranked Malaysia ETF?
Given these trends, a look to a Malaysian investment might be an
intriguing idea. Fortunately, investors have this with the
Malaysia ETF, which we have described in greater detail below:
iShares MSCI Malaysia ETF (
) in Focus
The fund looks to track the performance of the Malaysian equity
market. The fund invests about $853 million in assets in 44
holdings. The fund is concentrated in the top 10 holdings which
account for as much as about half of the total.
The ETF charges a reasonable 49 bps in annual fees. The fund is
heavily exposed to financials that make up for about 30% of the
share in the basket followed by the industrials and utilities
sectors (see more in the
The most striking part is the fund's return. EWM added about 11.2%
in the year-to-date frame (as of December 10) while the broader
emerging markets funds like
Vanguard FTSE Emerging Markets ETF (
iShares MSCI Emerging Markets Index Fund (
lost 1.15% and 0.43% respectively. EWM currently has a Zacks ETF
Rank #3 (Hold).
While things are not yet fully over the hump, the country might be
an intriguing pick for investors planning a portfolio reshuffle
going into the New Year.
Yes, the taper issue is looming large, but we believe analysts have
already adjusted this much-hyped concern in their forecasts. And
even after the adjustment - which should take into account reduced
investment - forecasts look fairly encouraging compared to many
other emerging nations, suggesting that EWM might be a solid choice
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ISHARS-EMG MKT (EEM): ETF Research Reports
ISHARS-MALAYSIA (EWM): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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