HSBC and UBS modernize their Malaysian stocks in the face of escalating trade war between the two countries

The escalation of the US-China trade war in recent weeks has caused several major banks to modernize their Malaysian equities, a market that foreign investors have been wary of for much of the year.

The Swiss financial giant UBS announced on Wednesday that it would put Malaysia to "overweight" to "neutral". That happened a day after HSBC, Europe's biggest bank, announced in a report that it had made the country of Southeast Asia "neutral" "to" underweight ".

The composite index of Malaysia, the composite index of Kuala Lumpur, has lost about 5% since the beginning of the year – and is one of the less successful Asian emerging markets. Many foreign investors have refrained from investing in Malaysia, citing concerns such as uncertainties surrounding the economic program of the new government.

But the resilience of the country, particularly at a time when tensions between the two largest global economies threaten to undermine global growth, has convinced some investors to reconsider their thinking.

"We think the economy looks resilient, with strong domestic demand and stable manufacturing growth, and weak earnings growth is a concern, but we expect a slight further decline." Valuations, though less attractive than other markets in the region, are not particularly expensive, "HSBC said in its report Tuesday.

"The market has strong defensive qualities, which should reduce downside risks if trade tensions intensify," he added.

This sentiment was shared by UBS, who said that Malaysia was matching the bill as a "defensive" market and offering "security" in today's global environment.

A defensive investment strategy is to build a portfolio with badets designed to minimize the risk of loss of capital.

"We are looking for defensive markets, security, and I think that's what we want to be positioned in the next few months," said Adrian Zuercher, head of badet allocation for the region. Asia-Pacific at UBS, Head of Wealth Management, CNBC. "Squawk Box."

Malaysia has often been cited as one of the countries that can benefit from the trade dispute between the United States and China.

Muhammed Abdul Khalid, economic adviser to Prime Minister Mahathir Mohamad, told CNBC on Tuesday that Malaysia's economic growth would bring 0.1% more returns to companies relocating manufacturing plants in China due to the ongoing trade war between the United States and China.