PETALING JAYA: Investors should adopt a two-pronged strategy made up of rotational plays on sectors and bottom-up stock-picking in this current market environment.
They should also continue to look for ideas based on unique turnarounds, event-driven catalysts, exporters and politically linked thematic plays, RHB Research said in a report to its clients yesterday, noting that “it is time to go long in this current selldown.”
“We have a preference for the consumer discretionary, technology, logistics, oil and gas, and plantation sectors,” the research house said.
Against the backdrop of a full-blown economic recovery this year, supported by its in-house growth forecast of 5.5%, RHB said “there are companies that are expected to perform well and record growth.”
That said, it is expecting market volatility to remain high for a large part of this year, no thanks to the fluid situation and prevailing uncertainties.
“We believe the upside is capped, as the expectations of a broad-based economic recovery seems priced in, while the downside continues to be supported by bottom-fishing activities.
“A ‘buy’ at the support level and ‘sell’ at the resistance level approach could thrive,” it added.
RHB, which is known for its annual “Small-Cap Jewels” launch that reveals a list of its top stock picks, will launch its 2022 Small-Cap Jewels soon, the research house said.
It said it aimed to “repeat the outperformances in its 2020 and 2019 editions, while continuing to uncover winning gems.”
That said, the research house pointed out that its Top 20 Malaysia Small Cap Companies Jewels 2021 had underperformed the broader market with a value-weighted holding period return of minus 14.2%, since its launch on May 5 last year, as compared to the return of benchmark indices – the FBM 70 (minus 12.5%) and FBM SC (minus 3.3%).
“Overall, the picks in the 2021 edition were unable to extend the outperformances from our 2020 and 2019 editions,” it said, citing the intensity of rotational plays amid uncertainties related to lockdowns, the resurgence of Covid-19 infections, global economic slowdown and the Russia-Ukraine crises as reasons.
It noted that the rallies of its selected stocks were shortlived in 2021, and their subsequent performances were dragged down by an overall lacklustre market.
“We were also not able to switch our portfolio accordingly to the ever-changing market condition.”
Meanwhile in its report, RHB noted that the short-term outlook continues to be clouded by persistently high inflation rates, higher-than-expected rate hikes, the Russia-Ukraine crisis, supply chain disruptions and domestic political instability.
“On the other hand, the pace of economic recovery seems to be the major catalyst supporting the equity market, in tandem with the net inflow of foreign funds that are searching for a safer market in South-East Asia.”
Notably, the foreign fund inflow so far has not benefited the small-mid-cap stocks much, it said.
However, the trend could swiftly be reversed, as local institutional investors could redirect their attention towards counters offering “alpha returns” in this space again should global geopolitical risks subside and inflation comes under better control, it added.