The bad news is that the International Monetary Fund (IMF) downgraded the outlook for Malaysia’s economy at large this year. In early 2010, the economy is expected to show signs of improvement that may translate into a 2.5% expansion, explains Tom Barkley for The Wall Street Journal.

External forces are are a factor for the Malaysian economy, with risks stemming from the duration of the global recession, financial markets and commodity prices. The country still has room for an expanded fiscal stimulus, should external forces cause more pain in the economy.

Malaysia’s budget shortfall may rise to 7.7% of gross domestic product this year, from an estimated 4.6% in 2008. Any decision on boosting spending should be made in the medium term because the country faces high budget deficits and rising debt, report Shobhana Chandra and Timothy R. Homan for Bloomberg.

• iShares MSCI Malaysia Index (EWM): up 35.2% year-to-date

For more stories about Malasia, visit our Malaysia category.

Malaysia’s Bank Negara Malaysia won’t encourage a further decline in the ringgit. They are not going to lean on their currency to make exports in the Asian country more affordable or attractive, reports Natasha Brereton for The Wall Street Journal.

For now, the ringget will reflect market conditions and for the medium term it reflects economic fundamentals. Although the currency weakened against its rival in Singapore, the position is not going to change for now.

Plans for expansion include Malaysian companies branching out to emerging economies like Vietnam, Cambodia, Laos and Indonesia, as they offer plenty of opportunities. Investment in the services sector will be what emerging markets need to get their confidence back, and Malaysian companies can adapt to this, reports Bernama.

• iShares MSCI Malaysia Index (EWM): up 24.6% year-to-date

For more stories about Malaysia, visit our Malaysia category.

The newly created iShares Emerging Market Infrastructure Index Fund (EMIF) offers investors even more exposure to emerging markets.  It isn’t the first of its kind, though. PowerShares offers the Emerging Market Infrastructure Portfolio (PXR) but its composure is much different than that of EMIF in that it is broader and holds companies that do business in emerging markets, such as Ingersoll-Rand (IR), states Roger Nusbaum for TheStreet.

As for the newly created EMIF, its industry breakdown favors transportation infrastructure, which makes up 33% of the fund’s assets; electric utilities which makes up 26% of its assets; and energy equipment, which makes up 20% of its assets.  Additionally, it is unique in that 9.1% of its assets are allocated to the following index funds: the iShares MSCI Malaysia (EWM), the iShares MSCI South Korea (EWY) and the iShares MSCI Chile Investable Index (ECH). The reason that EMIF holds the three aforementioned indexes has to do with the ETF creation and redemption process and the three countries don’t allow for so called in-kind transfers, a characteristic of ETFs that makes them tax-efficient.

In regards to exposure to markets, China is the largest at 33%, followed by Brazil at 14%.  It also has ample exposure to Argentina at 9% and the Czech Republic at 7.5%.  Of the 25 stocks held by the ETF, 10 are in Chinese companies. China is also the largest component of PXR at 20.2%, followed by Brazil at 9.3% and South Africa at 8.7%.

Both PXR and EMIF enable investors to take advantage of the affects of China’s massive stimulus package.  Most Chinese ETFs are heavily concentrated on the financial sector and not infrastructure, the big recipients of Chinese investment.

The two other global infrastructure ETFs available are iShares S&P Global Infrastructure (IGF) and SPDR FTSE/Macquarie Global Infrastructure 100 (GII).

For more stories on infrastructure ETFs, visit our infrastructure category.

Kevin Grewal contributed to this article.

After being crippled in a stagnating global economy, emerging market countries in Asia are showing signs of rejuvenation, remarks Gary Gordon for ETF Expert.

Korea’s ETF iShares MSCI South Korea Index (EWY), which is up 24.2% year-to-date, is above its 200-day long-term moving average. Investors are favoring the growth potential of Korean tech companies like Samsung and LG, along with Hyundai.

Malaysia’s country ETF iShares MSCI Malaysia Index (EWM) is up 18.2% year-to-date, and it previously had a 30% off its high, or the lowest “percentage-off-its-high” of any nation. Malaysia exports petroleum, liquefied natural gas, wood and rubber. Its ETF is also weighted at 30% in financials. The only concern whether Malaysia is able to compete against other cheap manufacturers in the regions.

Taiwan’s iShares MSCI Taiwan Index (EWT), which is  up 42.5% year-to-date, is being boosted by its technology sector, and information tech makes up around 60% of the ETF. Semiconductors are making a come back and EWT is seeing the benefits.

Many Asian countries now realize that they need to boost domestic consumption or risk being fettered to the economic health of Western countries, according to the Canadian Press.

Japan has started to focus away from exports to domestic sectors including green technologies, medical services and pop culture. Prime Minister Taro Aso announced plans to increase domestic demand by $400 billion in three years and add up two million in new jobs.

• iShares MSCI Japan Index (EWJ): down 5.5% year-to-date

China’s $586 billion stimulus package is likely to boost consumer spending and increase jobs in infrastructure and public works.

• iShares FTSE/Xinhua China 25 Index (FXI): up 17.9% year-to-date

Max Chen contributed to this article.

On March 31, Najib Razak, deputy of the former Malaysian Prime Minister, will be sworn in as the country’s sixth prime minister since its independence from Britain, according to the Economist. Malaysians are bracing themselves for a return to “Mahathirism,” a style of leadership that encourages state-led industrialization and promotes “Asian values.”

It is still unclear as to what the Malaysian central bank will to do with its benchmark interest rate, but some economists think it may stay unchanged at 2.5% or even drop down to 1.5%, report Stephanie Phang and Michael Munoz for Bloomberg.

Reports have shown that inflation has eased but exports fell to a record seven-year low. The Southeast Asia’s third-largest economy probably expanded around 1.4% last quarter, and the economy may contract 4% in 2009.

Malaysia’s growth performance may also mirror those of other regional tech exporters like Taiwan and Singapore. The Finance Minister is planing a second stimulus package next month on top of the previously announced $1.9 billion plan in an attempt to prevent a recession.

• iShares MSCI Malaysia Index (EWM): down 8% year-to-date
  

Further, the central bank is ready to adjust monetary policy to support growth, reports Liau Y-Sing for Thomson Reuters.

Southeast Asian economies have been strengthened by crude and palm oil prices, but a sharp turnabout in these commodities will most likely induce a slowdown in an economy that heavily relies on trade. Forecasts for domestic economic growth is said to be 1.5% in 2009 with interest rates potentially lowered to below 3% from the current 3.5% by the second half of 2009.

To boost consumer confidence and spending, the government has reduced gasoline and rice prices, according to the Associated Press. Experts in consumer research warn that the government should only control critical items such as food and petrol and let the market regulate itself.

Recently, inflation has reached 8.2% in September and 8.5% in July/August,  which was the highest level in three decades. The government has slashed its economic growth forecast to 3.5% from 5.4% for 2009 and promised a $1.9 billion cash injection into the economy next year.

Growth for the manufacturing sector is expected to drop to .8% from its original forecast of 4.3% for next year. The government plans to remove import duties for manufacturing and ease licensing requirements to help businesses.

The Deputy Minister of Finance has a more optimistic take on the current economic situation in Malaysia. He expects no recession but a slowly expanding economy with a growth rate of less than 5% for 2008 and 3.5% in 2009, writes Bernama.

Optimistic news may sway the fickle investor but the iShares MSCI Malaysia Index Fund (EWM) is currently down 43.3% year-to-date, so the optimism doesn’t seem to be warranted at the moment. The fund is 7.3% below its 50-day moving average, but sharply off the 200-day by 25.2%.

Deputy Prime Minister Datuk Seri Najib Tun Razak said the country has the kind of resilience that will allow it to grow 5% this year, according to a report on Bernama.

This comes a day after the prime minister also said the country is in no danger of slipping into a recession, and that the country has what it takes to weather the U.S. credit crisis.

Prime Minister Datuk Seri Abdullah Ahmad Badawi stated that the Malaysian reserves are strong, the surplus is strong, politics are stable, fundamentals are worthy, and their currency needs no capping.

Badawi has faith that their banking system is strong and that they have faced crises such as these before.

Razak says that despite a potential 5% growth for this year, growth for next year may need to be revisited as they take into account developments in the world economy.

Whether Malaysia rides out the storm unscathed or battered could be reflected in iShares MSCI Malaysia (EWM). In the last two weeks, Malaysia has been up 0.5% (and down 35% year-to-date), while the iShares MSCI EAFE (EFA) has been down 7.5% in two weeks (and down 37.5% year-to-date).

EWM is represented by the black line; EFA by the green.

Some economists have reveled in the fact that the Malaysian economy has gone through a decoupling of sorts from the U.S. economy. But it’s imperative for policymakers and local investors to be on guard about the possible bumps in the road that could form, as Malaysia’s exports to the States accounts for 16% of the country’s total exports, reports Shankaran Nambiar for The Star.

And interestingly, 15% of Malaysia’s exports go to Singapore, but a substantial portion of those exports ultimately wind up re-routed to the United States.

In 2001, the dot-com bubble burst and the growth rate in Malaysia went down to 0.5%, so this fact alone is keeping analysts on the cautious side. This also voids any notion that the Malaysian economy is totally separate from that of the United States’. Our current woes here have Malaysians concerned.

It’s perhaps with good reason, as iShares MSCI Malaysia (EWM) is down 22.6% year-to-date.