Although many emerging markets have been top growth destinations
for investors, recent trends in the space have pushed many to
reconsider high allocations to these regions. China is seemingly
fighting a hard landing, Brazil is growing at an anemic rate, while
many other nations are battling inflation and low risk tolerance
levels as we head into the fall.
Yet despite this gloom, there are still a couple great spots for
investors' dollars in the emerging market universe. This may
especially be the case for the Southeast country of Malaysia, a
small nation of about 30 million people that is often overshadowed
by other markets in the region such as Singapore and Indonesia
Southeast Asia ETF Investing 101
Still, although it is often overlooked, Malaysia is a perfect
showcase for the broad trend of Southeast Asian market
outperformance so far in 2012, despite the region's generally heavy
dependence on exports to developed nations for growth. In fact,
several ETFs in this region have been among the top country ETF
performers both on the year, and over the past few months as well.
This could continue to be the case as we head into the final
part of the year, especially if worries continue to build over
major emerging markets like Brazil or China, forcing investors to
look elsewhere for their developing market exposure. The trend
could eventually lead investors into Malaysia, and the country's
main ETF, the
iShares MSCI Malaysia Index Fund (
, as a way to avoid some of the main emerging market issues while
also targeting an incredibly stable and dynamic market in the
Southeast Asia region.
That is because Malaysia's recent GDP report shows that the
country is not only growing at a reasonable clip, but that it has a
robust outlook as well.
According to the Financial Times
, Malaysia's GDP growth for the most recent quarter came in at
5.4%, crushing the year-over-year growth estimate of 4.6% by
Five ETFs to Buy in 2012
If that wasn't enough, the country also revised its first
quarter growth up by
20 basis points to 4.9% y/y
, while it also declared that private consumption and private
investment rose by, respectively, 8.8% and 24.6% in the period. Not
only that, but inflation remains extremely moderate, coming in at
just 1.4% per year in the most recent reading for Malaysia.
To top off the good news for the nation, exports are still
growing-albeit slowly-suggesting that the global slowdown hasn't
really hampered the nation's growth prospects. This is especially
impressive considering that exports make up nearly 60% of the
nation's GDP, implying that the products Malaysia is selling are
still very much in-demand even with a global slowdown in the
This robust report and the central bank's lack of worry over
growth in the future, suggests a pretty impressive outlook for the
Malaysian economy in the near term. Given this, the aforementioned
iShares EWM could be an interesting play for investors seeking to
go off the beaten path and target a nation that is still managing a
solid performance in light of increasingly uncertain global
economic fundamentals (read
Emerging Market Small Cap ETFs: Freefall
Malaysia ETF in Focus
Investors are probably expecting the Malaysia ETF to be quite
concentrated in a few sectors and thus inappropriate for many
portfolios. However, this isn't really the case for EWM and the
fund does a great job of spreading out assets around the Malaysian
Yet with that being said, financials do account for roughly 33%
of the total, giving the product a definite tilt to financials.
Still, industrials make up nearly 20% of assets, consumer companies
account for 10%, staples for another 10%, and telecoms for 11.6%.
This implies that there is a pretty good mix of various sectors and
that consumer stocks are by no means forgotten in this iShares fund
Three Overlooked Emerging Market ETFs
Investors should also note that the product pays out a solid
yield of nearly 3.7% on an annual basis, more than enough to defray
the 52 basis point fee yearly fee. Furthermore, while EWM is
overlooked by many, it still has almost a billion in AUM and volume
in the million share level every day, suggesting tight bid ask
spreads for the most part.
Given the solid fundamentals of the fund as well as the strong
points of the Malaysian economy, the product could be a great
choice for many emerging market ETF investors. Not only does EWM
have a wealth of positives but the fund has outperformed broad
emerging markets by nearly 4,000 basis points in the past five year
period, suggesting that the ETF has been an extremely great choice
for investors (also read
Top Three Emerging Market Dividend ETFs For Income
While this insane level of outperformance probably won't
continue, the robust and diversified nature of the Malaysian
economy suggests that the nation still has a great deal of growth
left. Thanks to this and the market beating yield, we think EWM
could be a great choice for any investor who is looking for a new,
and more targeted way to play strong growth trends in an often
overlooked emerging market.
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Author is long EWM.
ISHARS-MALAYSIA (EWM): ETF Research Reports
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