Why Malaysia has held firm

While Hong Kong and Singapore have lost around 15% this year, Malaysia has proved relatively defensive; the Kuala Lumpur index is down by around 2%. Lower exports to the US are set to knock 0.7% off growth in 2008, as Finanz und Wirtschaft notes.

But the market has been buoyed by the boom in palm oil, revenues from which almost doubled to 15% of GDP last year. This hot sector comprises 20% of the stockmarket. Banks, which comprise another 20% of the index and are shielded from the credit crunch as their foreign business is minimal, and utilities have also propped up the overall market.

Meanwhile, infrastructure spending continues to rise and consumption growth appears to be breaking out of its post-Asian trading range, says Christopher Wood of CLSA. The market also looks reasonably valued on a p/e of 15. The longer-term macro story is "unexciting", however; the "affirmative action" programme in favour of the Malay majority has caused a brain drain and hampered foreign investment.

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It looks as though Malaysia will "retain its recently established trend" of outperforming Asia during downswings but lagging during upswings.

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