JP Morgan Asia equity research team today downgraded Malaysia's status to underweight.

They cited their concern about Malaysian banks, which also account for about 30 percent of the iShares MSCI Malaysia ETF (EWM) as one of the main reasons for the downgrade.

"Negative outlook on financials driven by increasing credit costs due to declining loan and deposit growth. Banks are grappling with rising non-performing loans (expected to peak at 3.1 percent in 2018)," they said, according to a report by Barron's Asia.

The iShares MSCI Malaysia ETF had fallen 7.7 percent in the second quarter, which makes it the second worst performing market in Asia after Taiwan.

Meanwhile, JP Morgan had lifted Australia from underweight to neutral, mainly due to the recent earning results from three of their banks.

The three banks are Westpac Banking Corporation, Australia and New Zealand Banking Group and National Australia Bank.

Those three banks, along with Commonwealth Bank of Australia, constitute about 30 percent of the iShares MSCI Australia ETF.