Investors in the U.S. are not even three weeks removed from
Election Day, but it is worth noting other investable countries
will be holding elections in the coming months. Malaysia, which
is expected to hold general elections in six months, is a prime
of country that is easily accessible to U.S. investors.
The Asian nation is also a prime example of one that can
easily be affected by domestic politics. To that end, the iShares
MSCI Malaysia Index Fund (NYSE:
) is one country-specific emerging markets ETF investors will
want to keep an eye on in the coming months.
Year-to-date, the iShares MSCI Malaysia Index Fund is up about
10 percent. That performance puts the ETF well behind comparable
rivals such as the iShares MSCI Philippines Investable Market
Index Fund (NYSE:
) and the iShares MSCI Thailand Investable Market Index Fund
). EWM has also lagged the SPDR S&P 500 (NYSE:
) by a decent margin.
In its favor, EWM has outperformed those
tracking Indonesia, Southeast Asia's largest economy.
Importantly, one reason EWM has likely lagged SPY is beta. As in
EWM qualifies as a low-beta ETF. The ETF's beta against the
S&P 500 is just 0.62,
according to iShares data
There is another reason to give EWM strong near-term
consideration. Prime Minister Najib Razak, the incumbent, and his
Barisan Nasional coalition are facing what is expected to be the
tightest election in Malaysian history. Following the country's
2008 elections, Barisan Nasional lost its two-thirds majority in
according to Reuters
Translation: Malaysia has adopted a familiar tactic seen in
U.S. That being the opening of government coffers by the party in
power to stimulate economic growth in election years. Emerging
markets ranging from
China to Brazil
have announced major infrastructure largesse this year,
Malaysia's own infrastructure program has gone largely ignored by
The country's $444 billion Economic Transformation Program is
aimed bolstering domestic demand and lifting personal incomes.
Arguably, the program is also designed to keep Razak in power and
increase support for the Barisan Nasional coalition.
Investors can reap the rewards of Malaysia's pre-election
generosity because the ETF is significantly exposed to the
nation's domestic economy. As is the case with many emerging
markets ETFs, financial services names loom large in EWM,
accounting for over 31 percent of the ETF's weight. However,
industrials and consumer staples combine for nearly 26 percent of
EWM's weight while discretionary names receive an allocation of
nearly 10 percent.
To the government's credit, the spending initiatives appear to
be having a positive impact. Malaysia posted second-quarter GDP
growth of 5.4 percent. Investments made by the public and private
sectors surged 26.1 percent, Reuters reported.
There are potential risks to the Malaysian economy and EWM
itself. While the spending plan has been lauded by the
international community, debt as a percentage of GDP in Malaysia
has risen by more than a third since 2008. The country's
debt-to-GDP of 53.4 percent at the end of the first quarter was
more than 200 basis points higher than that of the
That rate is dangerously high to the government's desired
limit of 55 percent and it does put some burden on investors to
ignore rising debt levels while embracing the theme of increased
To this point, the spending gambit appears to have worked.
Investors that can grab EWM in the $14.50-$14.60 area can bank on
some decent capital appreciation, perhaps up to five percent or
more, in the months ahead. They will also be compensated to wait
as EWM features a surprisingly decent 30-day SEC yield of nearly
For more on Malaysia and ETFs, click
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