Malaysia ETF Hits All-Time High on Election Results

Shares of the iShares MSCI Malaysia Index Fund EWM are soaring 5.8 percent Monday and are near all-time highs as traders in the U.S. digested news of Prime Minister Najib Razak's victory in elections held in the Asian nation over the weekend. Razak's National Front coalition captured 127 of Malaysia's 222 parliamentary seats. The party has ruled Malaysia for close to six decades.

The FTSE Bursa Malaysia KLCI Index, the country's benchmark equity index, rose 3.1 percent to 1,747.85, though traded higher by as much as 7.8 percent during Monday's Asian session. On the election-induced relief rally, financial services shares jumped as Malayan Banking touched an intraday record high while CIMB Group, Malaysia's second-largest bank, surged 10 percent.

That is good news for EWM because those are the ETF's two largest holdings, combining for over 18 percent of the $963.3 million fund's weight. Coincidentally, CIMB's chief executive officer is Nazir Razak. Yes, that Razak. Nazir is Najib's brother, Reuters reported.

Analysts and traders that closely follow Malaysia are not likely to soon forget that Najib campaigned, in part, on promises to to reduce corruption in Southeast Asia's third-largest economy.

Trouble Ahead
In post-election comments, Prime Minister Razak emphasized "This election was true, fair and transparent" while imploring his vanquished opponent, Anwar Ibrahim, to accept "the result with an open heart," NPR reported.

For his part, Ibrahim is not taking the result lightly, calling it the worst in Malaysia's history. Ibrahim has also hurled accusations of fraud, adding there were "specific incidents" of voter fraud involving foreign nationals, according to the BBC. There are rumors in Malaysia that foreign nationals were given documents to allow them to vote and some speculation some voters were allowed to vote multiple times.

With protests scheduled to take place in Kuala Lumpur Wednesday, the ebullience surrounding EWM could be short-lived. The lone Malaysia-specific ETF has already proven vulnerable to political concerns this year.

Prior to the start of trading Monday, EWM was only up 2.8 percent year-to-date, putting it well off the pace set by comparable Indonesia, Philippines and Thailand ETFs. Some traders in the region have already speculated Monday's surge in Malaysian equities was no more than an overdone relief rally as investors were happy merely to see the end of the election. That much may be evident by the FTSE Burse Malaysia KCLI Index, which finished well off its highs of the day Monday.

Alternatives
Investors looking for Malaysia exposure via ETFs without the potential vulnerability faced by EWM should fraud allegations and protests gain steam have several compelling options. The Global X FTSE ASEAN 40 ETF ASEA allocates 23.1 percent of its weight to Malaysia. ASEA also somewhat tempers emerging markets volatility through a 37.5 percent weight to allocation to Singapore while also featuring a combined 36 percent weight to Indonesia and Thailand, two of the better emerging markets this year.

Malaysia is one of the lower beta developing markets. As such the country pops up in some of the low volatility emerging markets ETFs, receiving an allocation of 11.6 percent in the EGShares Low Volatility Emerging Markets Dividend HILO and 8.4 percent in the almost $2 billion iShares MSCI Emerging Markets Minimum Volatility Index Fund EEMV.

The EGShares Beyond BRICs ETF BBRC, which debuted last August, allocates 14.5 percent to Malaysia. That ETF is up nearly four percent in the past month.

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