Macro Tsimmis

intelligently hedged investment

SELL MSCI Malaysia Index (EWM)

Posted by intelledgement on Thu, 13 Mar 08

Anwar Ibrahim is one of our heroes. His quixotic attempts to fight the corruption of his erstwhile mentor, Prime Minister Mahathir bin Mohamad, in the late 90s in response to the Asian economic crisis, and his spectacular subsequent downfall—sacked as deputy prime minister, arrested, tried, convicted, and jailed, ironically, on trumped-up corruption charges, and then on charges of homosexuality—are to us emblematic of the fitful advance of modernity in developing nations. We were cheered when  he won his appeal against the homosexuality charges and was released from prison in 2004. We were actively cheering last weekend, when Anwar’s People’s Justice Party—formally lead by his wife, as he personally is banned from politics until later this year as a consequence of his corruption conviction—stunned the world with a great showing, increasing their presence in the national parliament from one seat to 31.

The market reacted badly to this development, and the EWM was down 12% on Monday. The market hates uncertainty, and the prospect of a bunch of formerly jailed politicians making freah waves in a country with significant racial and economic fault lines is, on the face of it, alarming. It may be the case that the road to hell is paved with good intentions, but to our way of thinking the fact that masses of Malaysians are now embracing Anwar’s non-racial economic policy and history of working to bring Malaysia economically and socially into the 21st Century is outstanding news for the future of the nation. We would be more concerned about the quality of the bumpy road ahead than that of the destination, which, if Anwar or his successors are our guides, we look forward to reaching with enthusiastic anticipation.

So under normal circumstances, we would be adding to our position here, not selling.

Alas, in our present state, this can’t be so. The dollar is imploding under the weight of loose credit and lower interest rates and we need to move more our our portfolio into hard assets for now. Something has to go and with the short term prospects of instability here, today Malaysia is first on the list. We hope to be back here again soon, both because strategically Malaysia is a great place to invest and tactically because if we can reallocate funds back away from hard assets, it will be a reflection of overall improved conditions.

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