Tag Archives: ewm

3 Country ETFs Impacted By China’s Currency Devaluation

Wise were those analysts who had foreseen the start of a currency war post China’s yuan devaluation story. China shook the global markets on August 11 when its policymakers devalued the country’s currency by 2% against the greenback to boost its sagging exports. This resulted in the largest single-day decline since the historical devaluation in 1994 . Though the Chinese central bank defended its currency intervention ‘as a free-market reform’, global experts’ apprehensions of a currency war in the near future, especially among its Asian neighbors, are turning into a reality. Most export-centric economies will likely be forced to depreciate their currencies to stave off competition and rev up their exports. And analysts were not wrong at all, as this currency war is already underway. Let’s take a look at the country ETFs which were hit hard by the yuan devaluation. Vietnam To fight against the dark impact on its exports, Vietnam weakened its currency, dong, on August 19. This was the third time that the country devalued its currency this year and the second time in a week. The trading band has now has been widened to 3% from 2%, per Reuters. Like China, Vietnam also acts as a low-cost producer and earned some edge over China in recent times, as Chinese wages are on the rise. With a stronger currency, Vietnam would lose this competitive advantage. Not only exports, Vietnam is unable to sell products to domestic consumers due to the surge in cheaper Chinese imports, resulting in a widening trade deficit. In the first seven months of 2015, deficit in trade with China was $19.33 billion, worse than $14.88 billion of deficit in the year-ago period, according to Reuters . Following the latest depreciation in currency, dong fell 4.5% in interbank on August 18. In the last one month, the greenback gained 2.3% against dong. The Market Vectors Vietnam ETF (NYSEARCA: VNM ) – the pure play on Vietnam – lost about 5% in the last five trading sessions. Malaysia The Malaysian equity market has been an impacted area post the yuan devaluation. Also, a falling oil price marred the stocks of oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for Malaysia. On the other hand, China’s currency devaluation hurt its competiveness as an exporter. This, coupled with a strong U.S. dollar amid the looming Fed rate hike, recently sent Malaysia’s currency, ringgit, to a 17-year low. This resulted in the depletion of Malaysia’s foreign exchange reserves, and in turn soured investors’ mood toward Malaysian investing. Ringgit fell over 7% in the last one month against the U.S. dollar. Pure play-Malaysia ETF, the iShares MSCI Malaysia ETF (NYSEARCA: EWM ), was off 17.9% in the last one month (as of August 20, 2015). Indonesia Following the yuan move on August 11, Indonesia’s currency, rupiah, tumbled the most in 2015. This currency also touched a 17-year low after the yuan episode. Rupiah was the second worst-performing Asian currency this year. The country was already grappling with weak exports and a five-year low GDP growth. Indonesia ETF, the iShares MSCI Indonesia ETF (NYSEARCA: EIDO ), was down over 14% in the last one month. Original Post

Malaysia ETF Hits New 52-Week Low

For investors seeking to know about the painful areas of investing, the iShares MSCI Malaysia ETF (NYSEARCA: EWM ) is probably on the radar now. The fund just hit a 52-week low, and shares of EWM are down roughly 36.6% from their 52-week high price of $16.32. Are more pains in store for this ETF? Let’s take a quick look at the fund and its near-term outlook to get a better idea of where it might be headed. EWM in Focus EWM looks to track the performance of the Malaysian equity market. The fund has a focus on large caps, with key holdings in the Financials, Industrials, Utilities and Telecom sectors. EWM charges investors 48 basis points a year in fees, and has top holdings in Public Bank, Malayan Banking and Tenaga Nasional BHD (see all Asia-Pacific (Emerging) ETFs here ). Why the Move? The Malaysian equity market has been an area to watch lately, as its neighboring country China devalued its currency earlier last week, and Fed policy normalization has never looked so strong. Also, a falling oil price marred the stocks of oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for the country. On the other hand, China’s currency devaluation hurt its competiveness as an exporter. This, coupled with a strong U.S. dollar amid the looming Fed rate hike sent Malaysia’s currency ringgit to a new 17-year low last week. This resulted in depletion of Malaysia’s foreign exchange reserves, and in turn, soured investors’ mood toward Malaysian investing. More Pains Ahead? Currently, EWM has a Zacks ETF Rank #3 (Hold), so it’s hard to make out its future returns one way or another. However, the fund has a negative-weighted alpha of 38.21 . A negative-weighted alpha hints at more pain. So, for those who are currently not into the Malaysian ETF, it is wise to stay on the sidelines and wait for better entry points. Things will likely take some more time to stabilize. Original Post Share this article with a colleague

Malaysia: Truly A Bear Market

The Trend Is Your Friend for the Malaysia’s stock market and currency. Sell the iShares MSCI Malaysia ETF on worsening economic fundamentals, worsening technicals and worsening sentiment. The looming unwind of the global carry trade and a relatively pricey valuation for EWM means a further 20% drop in price by year end is highly likely. Malaysia is in big trouble. Its currency and stock markets are in bear markets with no sign things getting better any time soon. First of all, the country has weak economic fundamentals. Analysis by the Malaysian Institute of Economic Research, dated 4h August 2015, shows that the important indicators of consumer confidence, retail trade, employment and residential property are all pointing to weaker economic growth conditions. Then there is the country’s deteriorating terms of trade situation. In 2014 commodity exports accounted for 26% of exports and 18% of GDP. With palm oil, crude and refined products and natural gas, Malaysia’s key export commodities all heading lower, this is putting pressure on Malaysia’s fiscal situation. But don’t lower commodity prices hit many emerging markets? Yes, but in actual fact Malaysia is the only country within the Association of South East Asian Nations region that does not benefit from lower oil prices. This means that Bank Negara the country’s central banks will likely need to ease, weakening the ringgit further. This would be a bad development for the iShares MSCI Malaysia ETF (NYSEARCA: EWM ). The ringgit which is at ten year lows and broke though the key technical level of 3.7 ringgits to the dollar is in a strong bear market and monetary policy divergence is set to make the currency weaker. (click to enlarge) Although a weaker currency could help exports in theory, Malaysia has little room for credit expansion to spur domestic consumption and investment. According to the IMF Malaysia’s debt to GDP stands at 165% – one of the highest of all emerging market countries. This means the ” monetary transmission mechanism ” by which lower policy rates should help economic conditions may not be very effective. With EWM dropping from its 52 week high $16.32 to below $12, hasn’t the market already priced in a lot of these negative factors in already? I don’t think so – with a trailing P/E ratio of 16 times, the market is not cheap. Additionally, Malaysian stocks are highly susceptible to a de-rating once the Fed raises interest rates and fast money investors with their global carry trades accelerate their unwinding of risky asset holdings. That’s because as funding costs creep up for carry trades, the risk return of carry trades in Emerging Markets looks increasingly less favorable, and with fast money investors all conscious of the positioning of other like-minded investors it’s likely that they will be inching nearer to the exit door in order to get out first. This situation and a potential rush to sell could lead to a self-fulfilling prophecy in so many of the higher risk and especially commodity linked markets like Malaysia. For EWM the $12 mark was also a key technical level, as it has been both a support and resistance level several times since 2007 – see chart below. The next key technical level appears to be $10. (click to enlarge) Furthermore, global investors have no doubt been troubled by the ongoing scandal in Malaysian politics concerning the Prime Minister Najib Razak’s personal finances. At a time when Japan is steadily improving its corporate governance, other Asian countries need to do everything to keep up on this front because unlike Japan, countries like Malaysia are unable to implement quantitative easing without spurring massive inflation. The key risk to my thesis is if oil prices were to rally hard or if the policy divergence between the Fed tightening and Bank Negara’s likely easing were to turn around. These two scenarios would alleviate the economic fundamentals somewhat and support a market valuation of 16 times earnings in my view. However, I view this outcome as very low probability. The bottom line is Malaysia is a falling knife. There is no catalyst on the horizon which suggests attempting to pick a bottom could be successful. Investors with the ability to short, should short EWM. Long only investors who want exposure to Asia can find better alternatives. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in EWM over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.