iShares MSCI Malaysia ETF
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The iShares MSCI Malaysia ETF (EWM) remains a solid long-term exposure to Malaysia, but is downgraded to Hold after a strong rally. Malaysia's economy is resilient, with upgraded 2025 growth projections and contained inflation, supporting a positive outlook versus regional peers. EWM trades at a discount to larger emerging markets, offering value, but faces Q4 headwinds and heavy financials exposure.
EWM which focuses on 30 stocks from Malaysia is up by only low single-digits this year, and underperforming emerging markets and global markets quite significantly. We now feel EWM could witness better prospects ahead. Malaysia's macro outlook is stabilizing, with improved GDP growth, supportive government policies, and central bank rate cuts boosting domestic demand.
iShares MSCI Malaysia ETF offers investors exposure to some of the largest firms trading on Malaysia's stock market. Almost 60% of its holdings are established banks and utilities, with zero technology firms, lessening the possibility of significant outperformance. The ETF is hardly cheap based on a price-to-earnings ratio of 15x, particularly by emerging market standards.
Investing in Malaysia via the iShares MSCI Malaysia ETF (EWM) offers potential but carries significant risks due to its 45% exposure to the financial sector. Malaysia's economy is stable with low credit default swap premiums, a non-inverted yield curve, 4.4% GDP growth, low unemployment, and controlled inflation. Political stability and favorable policies, including investments in green energy and fiscal responsibility, support a positive outlook for EWM.
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ASEAN economies are expected to maintain steady growth despite global macro headwinds, with Malaysia poised to benefit from higher commodity prices and geopolitical shifts. Historical trends show ASEAN countries gained from a China-centric trade war, with companies seeking lower-cost manufacturing sites shielded from tariffs. Malaysia's economic outlook is positive, benefiting from higher commodity prices and potential geopolitical advantages if tariffs continue to target China.
The iShares MSCI Malaysia ETF is risky due to concerns about the Ringgit, Trump tariffs, and a weaker Chinese economy. Financials and utilities dominate EWM, with Ringgit value and NIMs under pressure from tariffs and inflation complacency, which would affect USD denominated investors. High expense ratios (0.5%) also have to be contended with, assuring some return shaved off earnings yields of around 6.6%, which aren't that high compared to 3% benchmark rates there.
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iShares MSCI Malaysia ETF offers investors diversification outside U.S. large-cap tech exposure. The EWM ETF tracks the MSCI Malaysia Index, giving investors access to Malaysia's growing economy with strong industries. EWM has high concentration in top holdings and financial sector, but provides exposure to various sectors in Malaysia's economy.
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iShares MSCI Malaysia ETF aims to track Malaysian equities, with heavy concentration in financials. Malaysia offers potential undervalued opportunities as global companies outsource production away from China. Lack of profit growth and flat EPS trends contribute to Malaysia's stock market underperformance.
While the China macro story of ongoing transition is a headwind to the rest of Asia, there is more to the region's economic health than this.
The iShares MSCI Malaysia ETF is heavily exposed to financials and the performance of the Malaysian Ringgit. There is potential upside for EWM due to likely monetary policy evolutions for financials and the Ringgit. The political situation in Malaysia is uncertain, but it seems to be improving, as stability in the government seems to be the main concern.