Malayisa ETF Continues to Struggle on Political Concerns

February 6, 2013 2:26 pm
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Shares of the iShares MSCI Malaysia Index Fund (NYSE: EWM) are off nearly 1.5 percent today and have drifted below the September lows as political concerns are once again seen weighing on Malaysian equities.

With a general election scheduled for this year, an even that must be held by the end of April, Malaysian investors have been skittish since the start of the year. That nervousness may be intensifying on speculation Prime Minister Najib Razak’s government will dissolve parliament following the Chinese New Year. This year, Chinese New Year will be celebrated on February 10 and 11.

Expecting a tough election year battle, Razak and the Barisan National Coalition unveiled the $444 billion Economic Transformation Program last year aimed at lifting domestic demand and boosting personal incomes.

Still, Razak’s approval rating hit its lowest level in 16 months in December and volatility in Malaysian equities is at its highest levels in nearly a year, Bloomberg reported. Volatility on Malaysia’s benchmark FTSE Burse Malaysia KCLI Index rose to 8.95 yesterday, the highest level since February 2012, according to Bloomberg data.

It is fair to say investors expect increased volatility when playing emerging markets, but Malaysia is usually one of the more docile developing nations. EWM’s beta against the S&P 500 is just 0.57.

That is well below a beta against the S&P 500 of 1.04 for the iShares FTSE China 25 Index Fund (NYSE: EWY) and a beta of 1.5 for the iShares MSCI South Korea Index Fund (NYSE: EWY).

Equity market volatility leading up to Malaysian elections is also seen dampening consumer attitudes there, a scenario that could bring added pressure to EWM. The ETF devotes a combined 22 percent of its weight staples and discretionary names.

A move below $14 could prove technically significant for EWM and increase selling pressure on the ETF because the fund has not closed below that level since December 2011.

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