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Believe It: Malaysia Election Result Boosts Rare Earths ETF

May 6, 2013 1:47 pm
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Believe It: Malaysia Election Result Boosts Rare Earths ETF

It is safe the Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) was not the first ETF traders and investors were looking to as a way of profiting from Malaysia’s election results, but there is no denying the downtrodden fund is up nearly 2.3 percent Monday.

What might come as even bigger surprise regarding REMX, an ETF that at the start of trading Monday was off nearly 22 percent year-to-date, is which one of its holdings is helping boost the fund. That honor goes to Australia-based Lynas (OTC: LYSCF).

At first glance, Lynas would seem like an unlikely, perhaps albeit temporary, savior for the rare earths ETF. After all, the shares hover around 60 cents and that is with the benefit of today’s 15.4 percent surge on volume that is already two-and-a-half times the daily average.

Still, Lynas is loving the results of Malaysia’s elections, held over the weekend, that saw Prime Minister Najib Razak retain power and his ruling National Front coalition capture 127 of the country’s 222 seats in parliament.

The Lynas pop is easy to explain. The company, whose shares were down 19 percent this year going into Monday’s session, is building the largest rare earths production facility in the world outside of China. That $800 million facility is located in the Malaysian city of Kuantan.

In a scenario reminiscent of what American voters see in nearly every election, Najib favors construction of the Lynas facility. His defeated opponent, Anwar Ibrahim, said during his campaign he would re-visit Lynas’ permit for the operation if he won power, according to the BBC.

And as is sometimes the case with related issues in the U.S., Lynas has faced strong opposition from environmental groups in Malaysia regarding its plant. That is understandable because rare earths mining is highly toxic for the environment, something that the Prius and Tesla owners of the world often forget.

To put into context the environmental risks of rare earths mining, consider this: China, which controls over 90 percent of the global rare earths export market, produces more than five times the waste gas, including deadly fluorine and sulfur dioxide, than the total flared by all miners and oil refiners in the U.S., according to the Arizona Daily Star.

Environmental concerns aside, the $128.2 million REMX is having a nice day for what feels like the first time in an eternity. Lynas, a 60-cent stock that is the ETF’s third-largest holding with a weight of 6.9 percent, is the reason.

For more on Malaysia, click here.