Beyond EWM: Other Ways to Play Malaysia

It is probably not fair to call it a stealth rally because Malaysia has been getting a decent amount of attention recently, but the performance of the iShares MSCI Malaysia Index Fund EWM may come as a surprise to some. In the past three months, the $933.2 million EWM has jumped 6.8 percent. Over that time, EWM has proven to be a better bet than comparable funds tracking China, Indonesia and Taiwan. In fact, EWM has outperformed the iShares FTSE China 25 Index Fund FXI by about 480 basis points since mid-May. Adding to the good cheer surrounding EWM is the fund's surprisingly decent dividend yield, currently 3.72 percent. While impressive, EWM's performance is not mystifying. While other marquee emerging economies are slowing, Malaysia's second-quarter GDP increased 5.4 percent compared with growth of 4.3 percent in the year-earlier period. The impressive second-quarter GDP growth was fueled by robust domestic demand. Research firms are now forecasting full-year growth of around five percent. Malaysia, like so many other developing nations, does have its flaws. The economy, while improving, is still largely exposed to the commodities trade. In addition, the country has had its share of sensitive political issues in the past. To that end, investors that want Malaysian exposure without going "all in" on the country can consider the following ETFs: Global X FTSE ASEAN 40 ETF ASEA The Global X FTSE ASEAN 40 ETF carries a weight of almost 28 percent to Malaysia -- the fund is one of the most heavily exposed to the country after EWM. ASEA has benefited from that Malaysia weight with a 7.5 percent gain in the past three months. Perhaps the biggest selling point for this ETF is that it tempers exposure to Malaysia, Indonesia and Thailand with an almost 39 percent weight to Singapore, a developed market. ASEA's current price/earnings ratio is almost 14.2 while its price/book ratio is just under two. PowerShares S&P Emerging Markets Low Volatility Portfolio EELV As the second fund to the low volatility emerging markets ETF party, EELV is well behind the rival iShares MSCI Emerging Markets Minimum Volatility Index Fund EEMV in terms of assets under management. There are some key differences between the two funds, including the weights offered to Malaysia. EEMV does what many multi-country emerging markets do: feature heavy exposure to Taiwan and South Korea, two nations that are arguably developed markets. Those two combine for about 26 percent of EEMV's weight, while Malaysia is sixth on the fund's roster with an allocation of 8.6 percent. EELV is 180 degrees from EEMV at the country level. Malaysia accounts for over 26 percent of the weight of this "low vol" play. Not surprisingly, EELV has been the better performer over the past three months. EGShares Consumer Goods GEMS ETF GGEM The EGShares Consumer Goods GEMS ETF features an allocation of almost 10.6 percent and the fund is more staples than discretionary in composition. However, there are a couple of drawbacks to consider. First, those that obsess over volume will not be turned on by GGEM and its average daily turnover of less than 2,100 shares. Second, Brazil and India combine for over 30 percent of GGEM's, indicating that at least one of those countries needs to start rebounding to drive the ETF higher. On the other hand, Mexico, which is also home to a compelling consumer story, accounts for 21.3 percent of GGEM's weight. WisdomTree Asia Local Debt ETF ALD There are pros and cons to considering Malaysian bonds. Barclays Captial recently offered a tepid endorsement of Malaysian sovereigns, noting an auction of benchmark five-years earlier this week was less-than-inspiring. The bank added that "price action may improve because local and external positioning in MGS appears to be light, but it will be conditioned on stability in global markets, in our view." On the other hand, Malaysia's balance sheet is strong. Mark Mobius, executive chairman of Templeton Emerging Markets Group, pointed out in a blog post on Malaysia that the country's external debt-to-GDP (the amount owed to foreign creditors) is just 30 percent. Mobius went on to point out the "sustained rise in agricultural commodity prices has raised income levels in its rural communities, and liquidity in its banking system remains high." Bonds denominated in Malaysian ringgits account for 11.1 percent of ALD's weight. For more on Malaysia, click here.