EWM: Financial And Ringgit Exposure Not The Best With Trump

seekingalpha11-23

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 ...

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That would include a country like Malaysia.   Matteo Colombo/DigitalVision via Getty Images  The iShares MSCI Malaysia ETF (NYSEARCA:EWM) is an ETF we've covered before with concerns around the Ringgit, the Malaysian currency, being critical due to the ETF's exposure to financials. The situation is quite similar now, where we believe the Ringgit is a bit risky due to the Trump tariffs, and risk of higher for longer in the US, despite two rate hikes having already taken place. Moreover, we think the region's troubles with a weaker Chinese economy as well as a being a net exporting area that depends on Trump's US for taking in exports. We aren't crazy about it. EWM Breakdown   Sectors (iShares.com) The main exposures by far are financials and utilities, which would all be Ringgit denominated businesses. Focusing only on financials, the things we are concerned about are NIMs and Ringgit value. Ringgit value is at risk of being under pressure due to the fact that Malaysia is ultimately pretty dependent on the US as an export destination. Tariffs are quite likely under Trump and those tariffs are basically explicitly designed to collect rent and to weaken countries that have been sustaining overcapacity and flooding the US with product where domestic markets, supported by the umbrella of China, are faltering. Countries with large trade surpluses with the US are all going to be under the gun.   Export Destinations (OEC)  Outside of tariffs, we are also concerned with the Ringgit due to what, we believe, is a complacent attitude in markets to inflation, which is not a solved issue. Expectations are still high, and even growing on a longer-term basis, and additional key inflation drivers like wage growth pin down underlying inflation at rates that are clearly higher than policy targets. Moreover, comps are going to get tougher in terms of commodities' effect on CPI figures, including oil. If indeed tariffs strikes these Southeast Asian economies, they will be more likely to cut rates relative to the US, and that would be another way the Ringgit could weaken. That would in turn impact NIMs, which would pressure profitability of the bank exposures in EWM, and would probably also impact loan growth. This would pressure the ETF's prospects as well.  Bottom Line Because it's quite an exotic ETF, expense ratios are rather high at 0.5%. PEs are also not particularly attractive at 15x, meaning just around a 6.6% earnings yield, which is not terribly ahead of the 3% benchmark rate for the central bank there considering the currency's pretty weak performance and volatility. Data by YCharts  If it is indeed Trump's objective to hit out at economies with positive trade balances with the US, we'd be worried about Southeast Asian currencies in general as well as their economies. Per capita exports are 30% greater than per capita imports in the country. They depend on vast foreign export destinations, including with major trading partner China. China is going through a deleveraging, that is trouble that could last a while as well. At least they've got Singapore, which should be a pretty reliable importer from them.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485782832"}