Slow Q4 for Malaysia (ETF: EWM; CEF: MF)

Morgan Stanley economists Deyi Tan and Denise Yam reported that Malaysian fourth quarter GDP growth was slower than expected, rising 5.2% year on year compared with their estimates of 6% and market expectations of 5.7%. This is also lower than Q3 growth of 5.3%. Full year growth was down from 7.1% in 2004 to 5.3% in 2005. Tan and Yam also note:

The downside surprise came from the slowdown in fixed investment (+0.4% YoY vs. +9.6% in 3Q) as well as de-stocking. Gross investment plunged 18.3% YoY in 4Q. The trend is consistent with what we have been observing in capital imports, but the decline was sharper than we expected...

The trade cycle turned up in 4Q05. Exports (+10.4% YoY) outpaced imports (+8% YoY), underpinned by strong electronics and resource commodity exports. The external balance contributed 3.4 percentage points (pp) to growth (vs. -1.4 pp in 3Q). External demand should continue to stay strong at least through 1H06...

Though the market seems to be fairly happy with Prime Minister Badawi’s cabinet reshuffle last week, and there has been gradual momentum in dismantling rent-seeking and GLC reforms in the past year, it has not been enough to create an obvious structural uplift in private investment to fill up the void after the government abandoned pump-priming.

See Tan and Yam's full analysis.

Note the divergence in the chart below between CEF Malaysia Fund (MF) and iShares' ETF Malaysia Index Fund (EWM) over the last twelve months. MF is represented by the black line, and EWM by the orange line.