Malaysia's stock market fell the most in 16 months Tuesday on
worries over the upcoming election.
IShares MSCI Malaysia Index (
) gapped down 3.33% -- it's largest one-day drop since September
2011 and the biggest loss globally Tuesday.IShares MSCI Emerging
Markets Index (
) pulled back 0.41%. The sell-off leaves EWM down 2.3% for the
month vs. a 0.69% uptick for EEM.
"Whenever there is speculation that Parliament will be
dissolved, the market weakens," Credit Suisse research analysts
wrote in a client note. "The quality of Prime Minister Najib
Razaks' win will be crucial, but the market feels hapless as the
potential outcome of the general election is murky."
EWM broke below its 50-day moving average for the first time
in a month. But it's only fallen 4% from its 52-week high, which
is considered a normal pullback in an uptrend. It trades above
its 200-day line, indicating a weak uptrend. It has a rather weak
IBD Relative Strength Rating
of 45, which means 65% of stocks has outpaced its gains and
momentum in the past 12 months.
means institutional buying and selling is about even.
Traders can use the
200-day moving average
as a stop loss, or line in the sand at which to sell if it
breaks below that level.
EWM returned 14.8% last year vs. 19.1% for its benchmark,
iShares MSCI Emerging Markets Index. The Malaysian ETF
outperformed in 2011 by losing only 2.7%, while EEM corrected
18.8%. As the No. 1 performing market in Asia on a five and
15-year basis, it returned an average annual 6.5% and 11.84% over
EWM, with 43 stocks, most heavily weights financials at 31% of
assets. Its other weightings are telecom 13%, industrials 13%,
consumer staples 11%, consumer discretionary 11%, utilities 10%,
materials 5%, energy 4% and health care 2%.
Credit Suisse figures Malaysia's stock market trades at 14.1
times 2013 estimated earnings with earnings growth forecast at
9.3%. It trades at 15.5 times 2012 estimated earnings with
earnings growth pegged at 20.9%.
"Our base case assumes that the ruling coalition, Barisan
Nasional, wins a majority in the 2013 general election, and there
are no major upsets or changes in the general election," Credit
Suisse analysts wrote. They believe the election has taken
attention away from the country's strong economic growth. They
highlighted in their report:
1. Malaysia's GDP (gross domestic product) growth of 5.2% in
third quarter 2012, 5.6% in second quarter 2012 and 5.1% in 2011
have surprised the market on the upside.
2. Total investments in Q3 2012 grew 26% year over year, after
reaching 30% year over year in Q2 2012 -- the highest rate in at
least a decade.
3. Private investments grew strongly at 25%, 28%, 24% and 23%
year over year in Q3 2012, Q2 2012, Q1 2012 and Q4 2011,
4. The World Bank Report on "Doing Business" ranked Malaysia
12th, moving up 11 spots.
5. Meanwhile, foreign direct investment (
) growth slowed albeit from a relatively high base last year. On
a 12-month rolling sum basis, FDI rose 3% year over year as of
June, but this was after an over 20% year over year increase in
" The biggest contribution to FDI growth came from the U.S.
and ASEAN (Association of Southeast Asian Nations) (up 24% year
over year), especially Singapore (up 10% year over year),
possibly reflecting investment in Iskandar."
Regardless of the election's outcome, the economy will
continue to benefit from government spending on infrastructure
projects, says Christopher Wolf, CEO and chief investment officer
of San Francisco-based Preservation Trust Advisors.
"Inflation is likely to remain under control as fuel and food
prices have been relatively stable; services inflation is up but
is also manageable," Wolf said in an email.
EWM has gained 10% from its May 2011 low. Wolf sees Tuesday's
drop as a "warning" rather than an alarm.
"Investors are getting nervous about the cessation of economic
stimulus as elections draw near, similar to gyrations in investor
sentiment we've seen in the U.S.," he wrote. "EWM is still up
substantially from its low last May."
William Nobrega, founder of Conrad Group in Miami, an emerging
markets consulting firm, believes Malaysia will be one of the top
performing markets of 2013 as strong economic fundamentals make
the ringgit, the country's currency, appreciate against the
"(The) growing middle class, growing service sector such as
financial services, health care and consumer products will
counter any slowdown in exports and the rapidly growing medical
tourism market," Nobrega wrote in an email.
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