On Tuesday, Australia is set to sign a free trade agreement with Malaysia. Malaysia has been one of the best performing regions in Asia recently and this move could help the country further its growing GDP. Australia is making the move to try and help its case for other countries to sign similar deals. Australia needs deals with South Korea, Japan, and China to help its exports and imports. Similar deals are already in place between Australia and these other countries: New Zealand, United States, Singapore, Thailand, and Chile.
Malaysia will benefit from the deal as it is becoming one of the major exporters in the Asian region. Malaysia is Australia's ninth largest trading partner. The two countries took part in $13 billion worth of goods shipped last year. One way to take advantage of the new free trade agreement is to go long iShares MSCI Malaysia Index ETF (NYSEARCA:EWM). The exchange traded fund holds 43 companies in its portfolio, as of 05/17/12.
The exchange traded fund trades at $13.59 per share. Over the last fifty two weeks, the ETF has traded at a range of $11.88 to $15.48. The iShares ETF has net assets of $908 million and charges an expense ratio of 0.52%.
The ETF is made up in the following fields:
· Financials - 31%
· Industrial - 15%
· Telecommunications - 12%
· Consumer Staples - 11%
· Consumer Discretionary - 11%
· Utilities - 11%
· Materials - 5%
· Energy - 2%
· Other - 1%
The two largest components of the ETF are financial companies. The new free trade agreement may benefit banks in Malaysia the most, as businesses borrow money to expand their ability to export goods to Australia. With a large portion of the ETF being made up of consumer related stocks (22%), investors could see benefits from growing international sales.
In 2011, the company paid out gains to investors twice with payments of $0.44 and $0.15. The payments represent an annualized yield of 4.3% at today's share price.
Another option for the more balanced investor is the Global X FTSE Asean 40 ETF (NYSEARCA:ASEA). Malaysia represents the second largest country weighting in the ETF. The ETF holds stocks from five countries listed below:
· Singapore - 36%
· Malaysia - 29%
· Indonesia - 21%
· Thailand - 12%
· Philippines - 1%
With the new free trade agreement, the time to buy the Malaysian ETF could be now. Malaysia's GDP continues to grow and the Asian region is being helped by growing demand for products produced in countries like Malaysia and Singapore. Take a look at both EWM and ASEA if you're looking for a new ETF to invest in.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.