Promising Economies and ETFsIskandar Malaysia-001-11-30T00:00:00+00:00
Carl T. Delfeld submits: There is more than meets the eye to the outstanding performance of the Malaysian (EWM) and Singaporean (EWS) stock markets and the exchange-traded funds which track them. Their economies and markets are integrating, reducing the perceived risk of investing in Malaysia which on its own is a solid middle-income country with attractive commodity and financial sectors.
Relations between the two countries have also improved, with progress on the always thorny water rights issue helping things along.
Sharat Shroff, Portfolio Manager for Matthews International Capital Management, comments on this trend after a recent visit to the region as follows:
My recent visit to Johor suggests that there is increasing integration between Malaysia and Singapore. Land and labor cost much less in Johor than in nearby Singapore. Even on a Saturday morning, several two wheelers were making their way over to Singapore. On a regular work day it is estimated that more than 150,000 workers commute over the Johor-Singapore causeway to earn a better living.
Driving around the up and coming townships, I could tell that rising income levels are translating into better quality homes for Johor residents. The average duplex units in mass townships are selling for about Malaysian ringgit 250,000-300,000 ($73,000-$87,000), which can be comfortably supported by an annual household income of about 150,000-200,000 ringgit ($43,000-$58,000) for a couple working in Singapore.
Investors in the Singapore exchange-traded fund hope that Lee Kuan Yew, Singapore’s elder statesman, is right when he recently predicted that the city-state was poised for “a golden age” over the next five years, owing to its transformation into a private banking and gaming center. Manufacturing, however, still accounts of 25% of GDP and the pharmaceutical industry is also a key driver of the economy.
The Financial Times reports that in the three months to the end of June, Singapore’s economy expanded by 8.2 percent from a year ago as construction grew by 17.9 per cent. The economy expanded by 7.9 percent last year.
Singapore is building two casino resorts and a new financial center on the southern edge of the city-state. Property developers are constructing new luxury apartment blocks to accommodate those attracted by the growing private banking industry. The Singapore stock exchange is also executing a well thought-out plan to become a regional financial hub and is attracting more foreign listings on its exchange.
EWM vs. EWS 1-yr chart: