Earlier in the previous article, we highlighted five things that could influence the direction of the Malaysian stock market.

In this article, we bring investors’ attention to three investment strategies that they can apply to achieve better returns in the Malaysian stock market in 2H17.

1. Buy the laggards

MBKE Research believes that 2H17 will be the time for laggards to catch up with the outperformers. Since end-April 2017, stocks like Eversendai, ViTrox and Old Town have been doing well.

MBKE Research believes that these outperformers are “ripe for profit taking”. Once investors have sold their positions in the outperformers, MBKE Research recommends buying the laggards in industries that have bottomed in valuation.

MBKE’s laggard sector pick: Automotive sector

The automotive sector is one of the sectors that MBKE Research has highlighted to “bottom fish”. Most of the listed auto stocks on Bursa has been underperforming against Bursa in the past two to three years due to MYR weakness.

Despite the recent recovery in the MYR’s strength, most auto stocks continue to underperform against Bursa in 1H17. But MBKE Research believes that the automotive sector has bottomed, and earnings will pick up over the next few quarters.

MBM Distributors

Perodua, Malaysia’s largest car manufacturer, will be launching a new model in 2H17 to replace Myvi. MBKE Research feels that the new model could excite the market and lead to strong sales for the new model.

As the distributor of Perodua, MBM stands to gain from Perodua’s expected growth in light of the new model launch. Another stock that MBKE Research highlights are Pecca, for its position as the sole supplier of leather car seats, cover to Perodua.

2. Creating a defensive portfolio

Both CIMB and MBKE Research are recommending investors to take a more defensive stance as we head into 2H17. CIMB Research believes that cyclical stocks have made a good run in recent months.

Nevertheless, CIMB Research cites concerns of overvaluation and potential external risks like tightening global financial conditions and a smaller-and-later-than-expected fiscal stimulus.

Thus, CIMB Research recommends investors to switch their position from cyclical stocks into defensive stocks.

MBKE’s defensive sector pick: REITs

MBKE Research believes that the REITs sector is still very resilient, given its high-quality assets and resilient earnings profile. The sector’s earnings were also lifted by several yield accretive acquisitions.

Moving forward, MBKE Research is confident that REITs should continue to provide decent dividend payouts to investors.

IGBREIT

Among the M-REITs, MBKE Research’s top picks are IGBREIT, SunREIT, MQREIT and ALSREIT. IGBREIT was singled out for its resilient earnings premised on its malls’ prominent location with large catchment areas.

SunREIT was also highlighted as a preferred pick for its M&A-led growth and possibility of asset injection from its sponsor Sunway Berhad.

MBKE’s laggard/defensive sector pick: Utilities sector

The utilities sector has been shadowed by profitability concerns arising from regulatory uncertainties.

Tenaga is due to have its base tariff (for the next regulatory period) reviewed while Petronas Gas is negotiating for the tariffs of its transportation and re-gasification divisions with the regulator instead of Third-Party Access (TPA) implementation.

However, MBKE Research believes that the market has been overly pessimistic on the share price of utilities stock due to the regulation uncertainty.

MBKE Research highlighted Tenaga as its top pick given its compelling valuations and stable earnings profile. MBKE Research is also positive on Petronas Gas for its favourable risk-to-reward following adverse market reaction to TPA concerns.

3. Hold cash and buy on weakness

Since some of the stocks have made a good run in the past few months, MBKE Research has expressed its view that quality stocks have become more expensive.

However, MBKE Research does not want investors to overlook quality stocks or growth stocks with good potential because of the overvaluation.

Instead, another investment strategy that MBKE Research recommends is to hold cash in the short-term to prepare a war chest to accumulate at any price dips.

Padini

The strategy applies to quality stocks (like Maxis, Padini and Old Town), deep value stocks or growth stocks (like IJM, Inari and SOP).

4 Bursa Stocks To Own In 2H17

In the next part of our three-part series, we will highlight four stocks that MBKE and CIMB Research recommends investors to own in 2H17.

Upcoming Event

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We managed to invite a few popular names in the finance and investment education world to speak at our upcoming Shares Investment Convention on 16 September 2017 (Saturday)!

They’ll be covering topics on personal finance, macroeconomics and investment strategies to help retail investors make more shrewd decisions especially in the current uncertain and volatile economy. Click on the button above to learn more and grab your early bird tickets. See you there!

P.S. Don’t forget to enter promo code “SHARES10” for a $10 discount!