In a year that has seen many stock markets struggle to find their footing, one of the bright spots in the global economy has been the developing Asian market of Malaysia. The Malaysian economy expanded at rate of 4.5% in the fourth quarter of 2009, and the government is now forecasting GDP growth of 6% for 2010. Due to this impressive growth, as well as the central bank policies of many of its neighbors (such as India, China, and Vietnam), many believe that Malaysia will be the next Asian economy to raise rates. In a recent survey of 29 economists, 13 believed that the Malaysian central bank would start a tightening cycle in the near future, which has helped to send the ringgit, the Malaysian currency, sharply higher. On Thursday, Bank Negara Malaysia hiked its key interest rate by 25 basis points to 2.25%, citing improvements in the domestic economy that allowed the gradual easing of stimulus measures implemented in recent years.
Furthermore, bullish actions and comments from big Wall Street banks have given a boost to the rapidly-growing emerging market. JP Morgan recently noted that it is seeking to boost its Malaysian presence by increasing both the commercial bank and treasury departments in the country within the next three years. Also, Franklin Templeton, a manager of over $187 billion in bonds, is increasing its exposure to Malaysian bonds in hopes of further appreciation of the Malaysian ringgit, according to BusinessWeek.
While many markets in Southeast Asia, especially Thailand and Indonesia, have also posted gains in 2010, they have lagged behind the impressive growth from Malaysia. “Indonesia’s economy has been doing very well, but it has not surprised on the upside to the extent that it has in Malaysia,” said Kevin Grice, an economist at Capital Economics Ltd. in London in an interview with BusinessWeek.
Malaysia ETF Options
Minor allocations to Malaysia are made by a handful of global and broad-based Asian ETFs, but the best way to gain targeted exposure to Malaysian markets is through the iShares MSCI Malaysia Index Fund (EWM). The fund tracks the MSCI Malaysia Index, a benchmark consisting of approximately 44 of Malaysia’s largest companies. Despite the fact that Malaysia is an emerging market, it has a reasonably diversified economy. Just under 31% of the fund focuses on financials while industrials (18%), consumer staples (14%), and consumer discretionary sectors (12%) make up material allocations as well. While the fund is probably more appropriate for growth-oriented investors, EWM does offer a 30 day SEC yield of 1.17%, and it is relatively uncorrelated with American markets; its beta with the S&P 500 is just 0.47 (see Five ETFs To Give Your Portfolio Much Needed Diversification for a look at more funds with low correlations to SPY). EWM has posted a 5% gain in 2010 and is up nearly 70% over the past 52 weeks.
Disclosure: No positions at time of writing