Joseph Hogue: The central bank of Malaysia has been less accommodative than others in the region, which has contributed to one of the lowest rates of inflation among peers. Despite restrictive monetary policy, the economy has held up well due to the more liberal fiscal policy.
Malaysia will probably hold general elections in 2012, most likely in the second or third quarter — although a schedule has not yet been announced.
Public confidence in the government has improved and the Barisan Nasional (BN) party should be able to maintain power along with Prime Minister Najib.
The fiscal deficit has begun to weaken and could be as high as 5% of GDP next year as the government increases spending going into the elections. This could drive prices upward, but inflationary pressures should remain relatively subdued.
Malaysia’s relatively closed investment environment has helped to insulate it from global weakness but has also kept growth lower than others in the region. The government has recently promised a series of reforms and economic liberalization, but actual passage may be long in coming.
The possibility of economic liberalization and probable increased spending ahead of the elections should help drive asset values and warrants an overweight position relative to other countries in the region.
The iShares MSCI Malaysia ETF (NYSEARCA:EWM) is a broad-based representation of the performance of companies in the Malaysian market.
EWM holds 44 stocks concentrated in financial services (29.5%), industrials (20.8%), consumer goods (20.6%) and telecommunications (9.5%). The fund has fallen by 9.3% over the last twelve months and currently trades for 15.0 times trailing earnings.
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