The local bourse may see renewed interest among investors as robust domestic demand and government spending on infrastructure drive earnings among companies.
Morgan Stanley Research analysts said in a recent report that the country was ranked at the top spot for the third quarter based on valuation, profitability, earnings and performance.
“Malaysia's attractive ranking is driven by a combination of attractive dividend yields, under ownership levels, improvement profitability and relatively strong performance momentum,” they said.
They added that the country's current dividend yield of 3% was higher than its three-year average. They said that according to EPFR Global, a funds flow and asset allocation data provider, investors continue to position the Malaysian stock market 210 basis points underweight compared to the MSCI Asia ex-Japan benchmark.
They said profitability in terms of return-on-equity basis has improved to 12.7%, higher than the three-year average. “One quarter relative price performance for MSCI Malaysia has also been strong as it was the second best performing market in Asean,” they said.
While MSCI South-East Asia consensus earnings growth estimates had been revised down by 23 basis points last week, MSCI Malaysia earnings were revised up by 54 basis points.
“MSCI Thailand estimates was revised down the most, by 41 basis points, followed by MSCI Singapore 40 basis points, MSCI Indonesia 10 basis points and MSCI Philippines 4 basis points,” they said.
They said consensus growth estimates for 2012 were 14.4% for Malaysia, Indonesia (9.3%), Philippines (8%), Singapore (3.1%) and Thailand (14.2%).
On a year-to-date basis and relative to the performance of MSCI Asia ex-Japan, MSCI Malaysia declined 1.5%, MSCI Indonesia contracted 7.2%, MSCI Thailand gained 9.2%, MSCI Singapore rose 12.4% and MSCI Philippines jumped 14.7%.
On a sectoral basis, Malaysian utilities was revised up 94 basis points while industrials was revised down 35 basis points.
Meanwhile, The Institute of Chartered Accountants in England and Wales said in a report that although growth prospects for Asean had fallen substantially in line with the deteriorating conditions around the world, “Malaysia is still going fairly strong as domestic demand remains relatively buoyant.”
It said that like other countries such as Indonesia and the Philippines, the basic story of rising middle class incomes in Malaysia persisted despite diminished prospects for investments due to lower profits for exporters.
It forecasts growth to slow down to an annual average of 3.8% in the second half (after growing 5.1% in the first half) due to external headwinds.
“Elections this year or next year bear some political risk, but in the event of a peaceful outcome, growth should rise by 3.5% in 2013. A recovery of its trading partners should see the country's gross domestic product rise by 4% in 2014,” it added.