Many articles (especially brokers reports) commenting on the 
stock market make assumptions about the correlation between the stock market and economic and/or political events. Whilst this is difficult to quantify, an investor must at least be able to separate the strands in order to understand price action.
As you can see from the slide below, the Straits Times Index has fallen a lot further in 12 months compared to the KLSE. This suggests that Malaysian companies are not perceived to be generally exposed to countries which are badly affected by the credit crisis. For instance, the revenue mix of a company like DIGI does not depend on consumers in Europe, America or developed Asian countries like Hong Kong or Japan. Because of the competitive landscape in which DIGI operates, it might be considered to be a safer alternative compared to US or European telecommunications industries.
Even within industries in the US or Europe, like, say Lehman Brothers or HSBC it is (or was when Lehmans was still around) possible to make distinctions between their sources of revenue (and even balance sheet). It is the understanding of these differences which caused one bank to fail and the other to remain unharmed. In a nutshell, HSBC’s main revenue is based on a banking business model which accords with the general understanding of people. Simple deposit taking, loans and clearing and custody functions constitute the core of HSBC’s business, whereas investment banking activities such as trading and principal investments (as well as more complex forms of lending and deposit taking) constituted the ‘core’ business of Lehmans. Even prior to the Lehamns debacle it was always very clear that customers and investors were moving away from its business due to the perception that its revenue mix and balance sheets were not as safe due to the riskier, more competitive nature of its business.
This movement towards safe, unexciting businesses truly represents the meek inheriting the earth.
So - the fundamental questions most investors are asking are: 1) How safe are its revenues and 2) how safe is its balance sheet? In order to figure that out, let’s take a look at Malaysia’s leading economic indicators.
As you can see, Malaysia’s leading economic indicators have fallen from a height of 160.8 to 159.4 in July, but is higher than last year’s average (which was very roughly around 152).
Although it is early days yet this provides strong evidence that revenues for Malaysian companies may not be as badly affected compared to say, Singapore or Hong Kong in a global slowdown. But, even though I would say we are in the late and possibly final stages of a Bear cycle, we are still in the early stages of economic contraction so this is not to say that there will not be other unanticipated dangers (which tend to surface and compound each other during bad times). But you can bet that investors are keeping their eyes firmly glued to the economic reports in the next few months.
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