iShares Malaysia: Strong Performer, But Watch Out

Jan.16.08 | About: iShares MSCI (EWM)

Why has the iShares Malaysia Fund (NYSEARCA:EWM) performed so well and would I recommend it?

Let's start with the first half of the question: The country’s economy surged 6.7% in the latest quarter numbers, exports are growing at a staggering pace, and inflation is contained. Add that to a currency that is hitting all-time highs.

And there's more good news. The economy is expected to grow at a 5% clip for the next several years. Meanwhile, its P/E ratio price tag is a reasonable 15. EWM also offers a yield of 3.15%. What's not to like?

The main thing that worries me about a speculative investment like EWM is the 30% weighting in financial services. If a global credit crisis spreads beyond the U.S. and the United Kingdom into Asia, how would Malaysia be able to avert it?

What's more, nearly all of the Asian tigers except for Malaysia have been taking a severe beating. Taiwan (NYSEARCA:EWT), South Korea (NYSEARCA:EWY) and Singapore (NYSEARCA:EWS) have all seen their ETFs dip a bearish -20%. Can Malaysia escape contagion?

Now for the second part of that question... would I recommend it?I’d recommend it only to those with a high tolerance for risk and an ability to manage downside risk through the use of stop-losses.