As a whole, we expect the economy to bounce back and expand at a faster pace of 5.5% yoy in 2H 2011, after moderating to 4.5% in the 1H. For the full-year, real GDP growth is projected to normalise to 5.0% in 2011, before picking up to 5.5% in 2012 and compared with +7.2% in 2010.

Both fiscal and monetary policies will remain supportive of economic growth. On the fiscal front, although there was no price hike on RON95 petrol to reduce the fuel subsidy, we believe the budget deficit of 5.4% of GDP projected for 2011 is still achievable given that the Government also benefitted from higher oil revenue.

A more moderate economic growth will likely lead to a larger current account surplus in the balance of payments for the country. This will continue to provide an underlying support to the ringgit at around RM3.00/US$. However, any substantial reversal of short-term capital could result in some temporary weakness of the ringgit, in our view.

Inflation will likely pick up to an average of 3.8% yoy in 2H 2011, from +3.1% in the 1H. For the full-year, inflation will likely increase by an average of 3.5% in 2011, more than double +1.7% recorded in 2010. As a whole, we expect Bank Negara Malaysia to raise its overnight policy rate by 25-50 basis points in the 2H to bring it to a more neutral level of 3.25-3.50%.

Eoin Treacy's view It is refreshing to get an Asian perspective rather than Western reports which tend to be overly concerned with domestic conditions rather than what is actually taking place in Asia.

The Malaysian stock market has been a regional, as well as global leader and while it is unlikely to remain immune from the continued selling pressure taking place elsewhere, it is likely to be one of the first markets to sustain a move to new highs once the correction has run its course.