Market Overview

Ahead of Election, Malaysia ETF Hits New High

Just weeks ahead of the country's next general election, the iShares MSCI Malaysia Index Fund (NYSE: EWM) is printing new 52-week highs as the country's current prime minister is increasing handouts in an effort to retain power.

On Tuesday, the iShares MSCI Malaysia Index Fund is higher by 1.2 percent and earlier touched a new 52-week high of $15.55. The $960.5 million ETF has jumped 5.3 percent in the past month, an arguably stunning reversal of fortune from earlier this year when election concerns turned EWM into a laggard among ETFs tracking Southeast Asian nations.

In the past month, EWM has easily outpaced the iShares MSCI Emerging Markets Index Fund (NYSE: EEM), the Market Vectors Indonesia ETF (NYSE: IDX) and the Market Vectors Vietnam ETF (NYSE: VNM), among others.

Earlier this month, Malaysian Prime Minister Najib Razak dissolved parliament and it is expected the country's Election Commission will meet Wednesday to discuss a new election date. Razak is facing opposition leader Anwar Ibrahim in an election that must be held by the end of this month.

As has been previously noted, Razak is taking a page from the playbook of American politicians, offering up an array of goodies to motivate Malaysians to vote for him.

Along with a vow to fight corruption, Razak has promised more financial assistance for Malaysia's needy and cheaper cars and homes, among other motivators, the Associated Press reported.

Najib pledged to increase an annual handout for millions of poor households from $164 to $392, build 1 million low-cost homes and lower car prices by up to 30 percent over the next five years, according to the AP.

Last year, Razak unveiled the $444 billion Economic Transformation Program aimed bolstering domestic demand and lifting personal incomes. Still, Razak, particularly if he is reelected, must be careful of how far he takes government largess. Malaysia's debt-to-GDP ratio of 51 percent is among the highest in Asia and its deficit-to-GDP ratio is also among the highest in the region.

One reason investors, EWM holders included, may want to see Razak emerge victorious is because government policies have helped buoy Malaysia's domestic demand story.

That has enabled the country to join the ranks of Indonesia and the Philippines as Southeast Asian economies that have proven durable in a fragile export environment.

"One follows the other, and the broad policy thrust is to move towards a high-income economy via re-energising the private sector to lead growth; developing quality workforce and reducing dependency on foreign labour; creating a competitive domestic economy; strengthening the public sector; putting in place transparent and market-friendly affirmative action; building the knowledge base and infrastructure; enhancing sources of growth and ensuring sustainability of growth," said Morgan Stanley in a recent research note.

At the moment, Razak looks like the favorite and EWM's recent price action might be a sign the ETF has begun to price in that result. And that could be a sign EWM investors should be happy with the status quo.

For more on ETFs, click here.

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