Malaysia – Palm, Rubber and Tourism & Foreign capital ….

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Malaysia is one of the hot emerging market countries now.After the Asian financial crisis a few years, Malaysian government has implemented many market-friendly policies while at the same protecting the domestic currency and stock markets from adverse effects of foreign direct investment.The infrastructure in Malaysia is very good when compared to other countries like India, China etc. The capital city of Kuala Lumpur (KL) has a neat Skytrain system that connects pretty much the whole city. The photo below shows one such train running thru downtown KL.

The people in Malaysia are conservative and save a lot of their income. The country has Malay, Chinese and Indian populations with the Malay and the Chinese forming the majority. Though the country is very close to Singapore, it is still a developing country while the city state of Singapore is a developed country. Malaysia is trying hard to become a developed nation.

Only the western part of Malaysia is well developed. The eastern part of the country is still very underdeveloped. The city of KL attracts huge capital inflows for may projects such as apartments, hotels, tourist related attractions etc. The city seems to expand constantly.

There is a major toll expressway that runs all the way from the north to the South connecting Singapore. This highway is well maintained and has made land travel within Malaysia much easier and faster.

There are a couple of options to invest in Malaysia:

One is the iShares Malaysia ETF – EWM.
This fund has grown nicely over the years and has now an assets size of over $1.0B.

Another option is to pick up a few of the Malaysian ADRs listed in the OTC market.

The following are the Malaysian ADRs listed in the US markets:

1. Genting – Travel and leisure – GEBHY.pk
2. Malayan Banking – Banks – MLYBY.pk
3. Resorts World – Part of Genting – RSWSY.pk
4. Tenaga Nasional – TNABY.pk

There a few well-run companies in that list such as the Genting and Resorts World. Both run the Genting resort and the many hotels within it. This hillstation tourist spot attracts millions of tourists each year including many of Chinese from Mainland China visiting Malaysia for the first time.
The picture below shows the cable run that runs from the base of the mountain to the resort.
This cable car seems to one of the fastest and longest in the world.


Some other companies available in the OTC are electric utility Tenega Nasional the banking group of Malayan Banking. In general Malaysia ADRs are very few to choose from.

Malaysia used to be a big producer of Rubber. Many years ago that changed. Now Palm Oil is the major commodity in Malaysia. Many of the old rubber plantations have been converted to grow Palm trees.

Malaysia has a few disadvantages as well.The country failed to launch and become a leader in the IT and other “knowledge” based industry due to many reasons. The spectacular “Petronas Towers” were actually built to launch an IT park where IT companies would set up shop and engage in all things IT. However that effort failed and now those towers are occupied by multinational corporations in addition to Petronas.

However Malaysia has succeeded in the electronics manufacturing space. All kinds of electronic items such as computer chips, watches etc. are now assembled in Malaysia. Malaysians are proud of this sector’s achievement.

For the foreseeable future, commodities such as Palm Oil, Rubber and tourism industry will remain the key engines of the Malaysian economy.

Why should you invest in foreign utility stocks?

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There are many reasons why you should invest a part of your portfolio in foreign utility stocks. Listed below are some of them:

1. Conservative growth – Generally utilities are considered to be a conservative investor’s best friend. They tend to growth slowly and steadily over time and provide high dividends. Unlike technology stocks or other high growth sectors, they do not grow exponentially in a short period of time.

2. Dividends – As mentioned above, utility stocks tend to have high dividend yields – most have a yield of above 3% and this dividend rate is increased year over year by many well-run utilities.
Since they do not have the need to reinvest the retained earnings to grow, many of these utilities pay their earnings as dividends to shareholders.

3.Government Assistance/Tax relief – Utilities get many forms of assistance from the governments of the countries they operate in. This can be in the form of tax breaks for investing in capital goods such as power plant equipments, pipelines etc. Recently governments are offering high financial incentives to those utilities that invest in carbon reducing technologies, green power plants, environment-friendly technologies such as wind energy etc.

There are a number of foreign utility stocks that trade in the NewYork Stock Exchange(NYSE) and the Over-The-Counter (OTC) exchanges. These range from electricity only producing utilities to multi-utilities that operate in the water, gas and electricity markets.

For a list of foreign utility stocks, visit:

Hi-Yield Portfolio(HYP)- Brazilian Utilities

Hi-Yield Portfolio(HYP)- European Utilities
Cheers!
-David

Closed End Funds

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Closed-End funds are similar to mutual funds except that they are closed to new investors.

In a Closed-End fund a fixed number shares are issued when the fund is formed and then the fund is closed to any new additional investors. But that does not mean a new investor cannot buy a Closed-End fund unit in the market. The units
of the Closed-End fund trade in the market where one can buy them. The units will trade either at a discount from its Net Asset Value (NAV) or at a premium to NAV.

A mutual fund is open-ended meaning new investors are accepted anytime and existing investors can redeem their units at any time and exit the fund.The fund basically issues new shares when more investors are attracted to the fund.

There are many closed-funds in the market to invest overseas. Some of them are listed below:

1. The Chile Fund – CH
This fund has assets of $233.0 Mil and is now trading at a premium to NAV.Most of the major Chilean stocks are in this fund. If you are looking for exposure to Chile, this fund is an easy way to accomplish that.

2. The Central Europe and Russia Fund – CEE
This one has $871M in assets and is trading at a discount now.As the name suggest it invests in the former communist bloc countries and Russia.

3.The New Ireland Fund – IRL
This fund is trading at a discount to NAV of about 11%. If you believe in the recovery of the Irish markets, you can pick up a few units of this fund.

Cheers!
-David

Invest (some) in International Real Estate !!!!

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Invest a portion of your portfolio in Global real estate. This may sound really silly considering the “sub-prime” crisis that is going on now in the US. But remember this is a problem mainly affecting the US.Agree that it has international impact since many financial institutions have invested in the derivative securities such as CDOs in the US. However this affects only those institutions and not the local real estate in each country. Thats why it makes sense to grab a few foreign real estate stocks while they are cheap now. How much you need to invest depends on your portfolio size and risk tolerance. Anything like 2-5% of your portfolio should be enough.

Real estate has always been a part of long-term investor’s portfolio because they provide diversification and also boost the portfolio’s yield with their high dividends.

The “sub-prime” mortgage crisis is uniquely an American situation. Unlike the US, it is not that easy for anyone to get a mortgage loan in many countries. In Germany, UK etc. one has provide all kinds of documentation and wait at least a month or two before a loan is approved. Banks in those countries actually verify all the details provided by the applicant.Ninja (No Income No Job or Assets) loans are unthinkable in those countries. Similarly in countries like Singapore, Malaysia, India, Brazil etc. it is difficult to get a mortgage easily even when the applicant qualifies. Its true that UK is affected more than any other European country by this sub-prime crisis, but that is because in UK a few “bad apple” institutions gave loans to people who cannot afford a big loan.

Another factor that supports the argument for investing in international real estate stocks is that the real estate market is holding up well in many countries such as the UK,Singapore, Malaysia etc. In UK for example, the London property prices has hardly fallen more than 2% due to high demand for housing in the city.UK’s strict land preservation laws also contribute to the supply of new dwellings since developers cannot acquire huge tracts of land for development.
In Singapore, though the property market is red hot the government there has announced recently that it will not interfere or take actions to cool it down.Being a small island nation, there is always a high demand for housing especially in sought after areas. Same is true in Malaysia as well. Cities like Kuala Lumpur, Singapore are dotted with sky high cranes building the next apartment tower.

India and China are a different story. Property prices in both the countries have gone through the past few years particularly in major cities with many speculators playing the market.

With that introduction about property markets in a few countries, let’s look at a few options to invest in foreign countries. There are many choices available to US investors. Some of them are listed below:

a. ETFs:
1. SPDR DJ Wilshire International Real Estate ETF – RWX

This has assets of over $1.1B and gives a yield of 3.27%. Has some 6.2% of portfolio in Singapore, 21% in Australia, 7% in Canada and many other countries.

2. WisdomTree International Real Estate Fund – DRW
This is a small fund with $52M in assets and has an yield of 4.06%.

b.Mutual Funds
1. ING Global Real Estate Fund – IGLAX
2. Fidelity Internation Real Estate Fund – FIREX
3. Cohen International Realy – IRFAX

and many more.

-David