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Malaysian Stock Market: High Dividend Distribution Ratio of 66.14%

The iShares MSCI Malaysia ETF is an exchange traded fund that provides investors with direct exposure to Malaysian equities. As of November 25, 2022, the fund had $245 million in assets under management and an expense ratio of 0.50%, which makes it relatively unpopular and not particularly cheap.
At the time, I thought the fund’s bearish trend would continue. According to Seeking Alpha data, the price of EWM stock fell -8.31%, compared to a pure price (comparable) movement of -10.64% for the S&P 500 U.S. Equity Index. The unattractive, low-return sector exposure makes the fund attractive, as does the fact that China (a key player in the Asia-Pacific region where Malaysia is located, and therefore naturally exposed) is heading into recession. Given the fund’s share price and regional/cyclical exposure, I do not believe EWM is providing adequate returns.

However, EWM has not fallen as much as the U.S. equity index and despite the fact that the Malaysian ringgit has fallen against the U.S. dollar since I last covered the fund. A weaker ringgit would normally be a detriment to EWM because its underlying holdings are denominated locally in ringgit, while EWM’s shares are denominated in U.S. dollars. Above all, it is worth reassessing EWM, especially in light of the changing portfolio composition and earnings growth results and expectations that it may be particularly vulnerable to changes at the end of the Chinese business cycle. The fund aims to replicate the performance of the MSCI Malaysia Index, whose latest fact sheet (as of October 31, 2022) reports trailing and forward P/E ratios of 16.33x and 13.21x, respectively. The fact sheet also reports a price-to-book ratio of 1.46x and an indicative trailing dividend yield of 4.05%. This implies a moderate forward return on equity of 11.05% and a high dividend distribution ratio of 66.14%.

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