Malaysia's Inflation at 3.9%: ETFs in Focus

Malaysia’s Consumer Price Index (CPI) rose 3.9% year over year in May 2017, well below market expectations of 4.2% and a 4.4% rise in April. Moreover, a 4.3% year-over-year surge in CPI was recorded for the first five months of 2017.

Per the Malaysian Statistics Department, major groups that recorded significant increases in CPI values were Transport (up 13.1%), Food and Non-Alcoholic beverages (up 4.4%), Recreation Services and Culture (up 2.9%), Health (up 2.9%), Restaurants and Hotels (up 2.3%), and Housing, Water, Electricity, Gas & Other Fuels (up 2.2%). The surge in price of oil was a major factor driving the rise in CPI.

However, core inflation rose 2.6% year over year in May 2017 compared with a rise of 2.3% in April. This figure excludes volatile items such as fresh food.

From a core inflation point of view, , major groups that recorded significant increases in price were Food & Non-Alcoholic Beverages (up 4.2%), Transport (up 3.1%), Recreation Services & Culture (up 2.9%), Health (up 2.9%), and Housing, Water, Electricity, Gas & Other Fuels (up 2.7%).

Taking a growth view, Malaysia’s GDP increased 5.6% year over year in first-quarter 2017 compared with a 4.5% rise in the fourth quarter of 2016 (read: Malaysia Growth at 2-Year High: ETF in Focus).

Let us now discuss the most popular ETF providing exposure to Malaysian equities.

iShares MSCI Malaysia ETF EWM

This fund is a pure play on Malaysia and is appropriate for investors looking to gain exposure to this emerging market nation.

EWM has AUM of $426.84 million and charges a fee of 48 basis points a year. From a sector look, Financials, Industrials and Utilities are the top three allocations of the fund, with 30.33%, 15.07% and 14.65% exposure, respectively (as of June 19, 2017). From an individual holdings perspective, Public Bank, Tenaga Nasional Bhd, and Malayan Banking are the top three holdings of the fund, with 12.14%, 10.02% and 7.06% allocation, respectively (as of June 19, 2017). The fund has returned 13.64% year to date and 2.63% in the last one year (as of June 20, 2017). EWM currently has a Zacks Rank #3 (Hold) with a Medium risk outlook.

We will now compare the performance of EWM with a broad-based South East Asian ETF, ASEA.

Global X Southeast Asia ETF ASEA

This fund provides broad exposure to the five members of the Association of Southeast Asian Nations, Singapore, Indonesia, Malaysia, Thailand and the Philippines. It is appropriate for investors looking for a diversified exposure to South East Asia.

ASEA is less popular with AUM of $12.04 million and charges a fee of 65 basis points a year. The top three Geographical allotments are to Singapore, Thailand and Malaysia, with 30.64%, 22.11% and 21.77% exposure, respectively (as of March 31, 2017). From a sector look, Financials, Telecommunication Services and Industrials are the top three allocations of the fund, with 45.10%, 16.05% and 7.86% exposure, respectively (as of March 31, 2017). From an individual holdings perspective, DBS Group Holdings Ltd, Oversea-Chinese Banking and United Overseas Bank Ltd are the top three holdings of the fund, with 7.12%, 6.77% and 5.66% allocation, respectively (as of June 20, 2017). The fund has returned 17.59% year to date and 16.26% in the last one year (as of June 20, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook (read: Investments in Singapore Property Assets Rise: ETF in Focus).

Below is a chart comparing the year-to-date performance of the two funds.

 
Source: Yahoo Finance

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ISHARS-MALAYSIA (EWM): ETF Research Reports
 
GLBL-X SE ASIA (ASEA): ETF Research Reports
 
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