Politics Punishing Malaysia ETF
Shares of the iShares MSCI Malaysia Index Fund (NYSE: EWM) are off 3.3 percent Tuesday on volume that appears poised to eclipse the daily average as news of an imminent election is weighing on Malaysian stocks.
Benzinga reported in late November that Malaysian equities and EWM could be affected by election-year political wranglings in 2013. That prediction looks to be accurate after Malaysia's KLCI Index lost more than three percent in the first two trading days of this week.
Prime Minister Najib Razak told voters that he expects to soon announce a date for the upcoming general election. Razak and the Barisan Nasional Coalition face an uphill battle due to Malaysia's slowing economy, Channel News Asia reported.
Knowing that this year's election could be a tough fight, Razak and the Barisan National Coalition unveiled the $444 billion Economic Transformation Program last year aimed bolstering domestic demand and lifting personal incomes.
Government spending of that magnitude should be helping Malaysian retailers, but it is that sector that has been feeling the heat amidst the KLCI's two-day tumble, according to Asia Channel News. Malaysian consumers are seen tightening their purse strings until after the election, which must be held by April, according to the media agency.
Predictably, that scenario is weighing on EWM, which allocates nearly 22 percent of its combine weight to staples and discretionary names.
If history repeats, more downside could be in the offing for EWM. When the Barisan National Coalition lost its two-thirds majority in Malaysia's parliament in 2008, the KLCI plunged 39 percent, according to Bloomberg.
Malaysian stocks are typically among the least volatile in the developing world, a fact highlighted by EWM's beta of just 0.57 against the S&P 500. However, politics have a way of increasing equity market volatility and that has already been seen with Malaysia as the KLCI has become more volatile in recent days than comparable bourses in India, Thailand and South Africa, Bloomberg reported.
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