Mobius Bullish on Malaysia (EWM)
Famed emerging markets investor Mark Mobius, executive chairman of Templeton Emerging Markets Group, extolled the virtues of investing in Malaysia in a recent blog post. Malaysia, Southeast Asia's third-largest economy, is expected to grow 4.2 percent this year and 4.7 in 2013, according to the Malaysian Institute of Economic Research.
Malaysia's IPO market is thriving this year and the country is home to "two of the top three global IPOs so far this year," Mobius said.
"While foreign participation in Malaysia's market has been modest, I think these IPOs in the midst of global market uncertainty have piqued investor interest in this often-overlooked country," Mobius said on his blog.
As Hong Kong and Singapore, two of Asia's top financial centers, have seen IPOs shelved due to slack investor demand, Malaysia has been home to 11 new listings this year including the $3.3 billion offering by palm oil giant Felda Global Ventures.
However, there is more to the Malaysian economic story beyond a robust IPO market. Mobius notes Malaysia's total government (public) debt-to-GDP ratio has risen this past year to above 50 percent, but external debt-to-GDP (the amount owed to foreign creditors) is just 30 percent. That is good enough to put Malaysia in the conversation about other fiscally sound emerging markets.
The Malaysian economy is also benefiting from the country's status as a net oil exporter. That factor, along with a strong balance sheet and IPO market, have helped the iShares MSCI Malaysia Index Fund (NYSE: EWM) outperform the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) by 200 basis points year-to-date. EWM has also trounced the Market Vectors Indonesia ETF (NYSE: IDX) and the iShares FTSE China 25 Index Fund (NYSE: FXI).
Investors looking to gain access to Malaysia beyond the pure-play EWM have several other ETF options. The Global X FTSE ASEAN 40 ETF (NYSE: ASEA) devotes almost 28 percent of its weight to Malaysia. At almost 26 percent, Malaysia is the top country weight in the newly minted PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSE: EELV). The country is also the top country allocation in the PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSE: PIE) with a concentration of 15 percent.
ASEA's Malaysia exposure appears to be benefiting the fun, which is up 12.2 percent year-to-date. That ETF is trading about five percent below its 52-week high. EWM and ASEA could have more upside should the Malaysian growth story take shape in favorable fashion.
"To me, the potential for Malaysia's growth appears obvious," Mobius said on his blog. "It has a young, growing population (the median age is 26.8) and it has been a prime beneficiary of a bullish commodity cycle in recent years. Malaysia is a net exporter of oil and gas, and is one of the world's top three producers of palm oil and rubber. The sustained rise in agricultural commodity prices has raised income levels in its rural communities, and liquidity in its banking system remains high. These elements paint a hopeful picture for strong potential consumption growth and the capacity for both public and private sector reinvestment in the Malaysian economy."
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