Friday’s ETF To Watch: Malaysia Fund (EWM)

by on November 26, 2010 | ETFs Mentioned:

As equities have tumbled in recent weeks, markets have succumbed to international issues that have led to increased concern over the health of the global economy. While many were focused in on the crisis in Ireland and the possible bailout of the highly-indebted nation, new geopolitical risks have been emerging in recent days. Earlier this week, the tensions between North and South Korea reached a completely new level as the two nations exchanged artillery fire sending many emerging markets and exchanges throughout the developed world, into a tailspin. With U.S. markets closed yesterday in observance of Thanksgiving, many are hopeful that markets can stabilize today, and get back on track in the short Friday session. Though many will take a day off from international worries and crumbling markets, international data emerged yesterday that could be a major market mover when markets open in post-Thanksgiving trading [see also Korea ETFs Plummet As North/South Tensions Flare].

While Americans were chowing down on turkey, Malaysian giant Sime Darby Berhad reported its quarterly earnings. Though that name may seem relatively unimportant at first glance, deeper research shows it to be quite relative to ETF investing. Sime Darby is a multinational conglomerate based in Malaysia, and has its hands in a wide variety of business sectors. The company does business through property, industrial, motors, energy and utilities, as well as a growing strength in the health care field. Because this company, one of the largest in Malaysia, has its hands in various business segments, its earnings report may shed light on the Malaysian economy as a whole and where it is headed in the near future [see also ETFs For The “Next 11″ Economies].

Malaysia is home to a number of resources that it uses to boost its rapidly developing economy. The country’s main exports are petroleum, palm oil, timber, rubber, and textiles among others. The petroleum industry in particular, is vital to the Malaysian economy, as the major oil and liquefied natural gas producer, Petronas, accounts for nearly 40% of government revenue; a dependence that the country is slowly weening off of. Strong manufacturing is also a major driver for the economy, as they rely heavily on international trade with a number of countries in the Southeast Asian region to power the nation’s growth. Malaysia is able to boast unemployment of 5%, and inflation under 1%; levels that are far lower than many of their peers in the region [see also Corruption Scandal Sinks India ETFs].

With this major Malaysian firm reporting earnings during yesterday’s closed markets, the iShares MSCI Malaysia Index Fund (EWM) will be today’s ETF to watch. This ETF seeks to replicate the performance of the Malaysian equity market, which has seen its fortunes soar in the decade following the Asian Financial Crisis of 1997. Sime Darby comes in as the third largest holding of the fund, accounting for over 7% of the assets. In terms of sectors, the fund gives financials (21%) its highest sector weighting, followed by consumer goods (14%), and industrial materials (14%). From a performance standpoint, EWM has had an impressive year, gaining nearly 30% with a dividend of 1.5% [see EWM's fundamentals here]. If Sime Darby fails to hit their marks, look for this ETF to take a hit on the day, but a positive report from the company and solid guidance could translate into a positive trading day for EWM.

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Disclosure: Photo courtesy of Ángel Riesgo Martínez. No positions at time of writing.