Malaysia ETF Offers a Different Slice of the Emerging Market Pie
It’s hard out there for a vibrant, diverse economy that represents less than 27 million productive people. Sure, your homeland may have a trade surplus like China, but you’re not China. Your country may boast a wide range of natural resources from oil to tin like Brazil, but you’re not Brazil. You may even be the envy of other Asia Pacific “emergers,” yet South Korea has the Kia “Seoul” and you have yet to dazzle with your capital’s namesake, “Kuala Lumpur.”
It’s not that the iShares MSCI Malaysia Fund (EWM) hasn’t been a standout performer. It weathered the global economic downturn better than most of its peers. And 38% YTD is hardly shabby for 2009… unless you compare it to iShares MSCI Brazil’s (EWZ) 74%, iShares MSCI Korea’s (EWY) 52% or iShares China 25’s (FXI) 44%.
Yet it should be noted that a 1-year perspective shows Malaysia’s true competitiveness. Moreover, the iShares MSCI Malaysia Fund (EWM) is one of the few emerging market ETFs with a P/B below 3 and a low risk beta below 1.
The population of Malaysia is exceptionally unique, with a majority of citizens following Islam and 1/4 of the denizens are ethnic Chinese. Many believe that Kuala Lumpur is becoming the premier financial center for Islamic transactions. Indeed, the iShares MSCI Malaysia Fund (EWM) has a substantial weighting in financial companies at roughly 29%.
And for those that believe the freedom to conduct business transactions matters to business profitability, consider the web site, DoingBusiness.Org. Of 180+ economies around the world, Malaysia ranks #1 for access to credit and #4 for investor protection. China? #59 and #88 respectively.
Going forward on an investment in Malaysia, there are number of uncertainties. For instance, Tom Lydon at ETF Trends discussed the country’s intention to maintain a strong currency, even at the expense of fewer exports. What’s more, Malaysia’s budget imbalance as a percentage of its GDP is significantly high in 2009. That said, a poll by The Economist sees greater economic expansion in 2010 for Malaysia than it does fro neighbors like South Korea, Singapore, Taiwan and Hong Kong.
From a value standpoint, iShares MSCI Malaysia (EWM) is arguably a formidable player. Acknowledging this, I’ve been more inclined to diversify across Asia with the SPDR Emerging Asia Pacific Fund (GMF). Over time, one tends to see better risk-reward gains from regions than from single country endeavors.
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