Malaysia Rises on Crude's Tide

Just last week, Moody's issued positive upgrades for local banking stocks. Using its Banking Financial Strength Ratings, known as BSFRs, Moody's upgraded Hong Leong Bank to C- from D+, CIMB bank to D+ from D- and Standard Chartered Malaysia Bank to C- from D+. (Moody's BSFR ratings range from A to E.)

Going forward, as China and other emerging market economies put upward pressure on interest rates, "a lot of emerging markets will suffer in the slowdown of economic growth, but Malaysia is possibly better positioned than most," adds Urquhart-Stewart, because of its role as a raw material supplier. "It's one place unlikely to be affected by these factors as much."

However, the high returns are not without their share of risks. Foreign direct investment growth has been negative this year while the ringgit -- Malaysia's national currency -- is rising steadily against both the dollar and China's renminbi, making local assets increasingly expensive for foreigners. The ringgit has strengthened by 3% this year against the dollar, and by nearly 9% since last summer, to 3.4095 ringgit to the dollar.

To help offset the ringgit's sharp rise, Bank Negara, Malaysia's central bank, has issued local Chinese renminbi sterilized bonds -- a type of bond denominated in a foreign currency -- in the hope of luring foreign investment, and in particular Chinese investment into the country. But the "appetite for these bonds among commercial banks has recently waned," says Darby, prompting the government to heavily buy them back up. If foreign investment cools off in Malaysia, as for other countries in Asia, this could dampen growth and demand for the raw materials that are the country's key source of revenue.

But few observers see that scenario happening any time soon, leaving Malaysia in the sweet spot for the foreseeable future.

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