KUALA LUMPUR (July 7): Hong Leong Investment Bank Bhd said Malaysian "defensive stocks may lead" in 2017's third quarter (3Q17), as the equities market rally and penny stocks lose their shine.
Hong Leong Investment analyst Loui Low said the research house’s top picks included Comfort Gloves Bhd, GHL Systems Bhd, JCY International Bhd and Gadang Holdings Bhd for their upside catalysts.
He said Hong Leong Investment also preferred defensive picks with decent valuations like Protasco Bhd, Engtex Group Bhd, CSC Steel Holdings Bhd, Heveaboard Bhd, Tex Cycle Technology (M) Bhd and Thong Guan Industries Bhd.
"Focus on stocks with defensive character. The rally euphoria has softened in 2Q17 and we expect the excitement into penny stocks are also likely to slow down further in 3Q17. Meanwhile, trading strategy would be picking stocks with sustainability in earnings, coupled with defensive attributes," Low wrote in a note today.
The FBM KLCI's 3Q17 upside is expected to be limited. Low said Hong Leong Investment expected the KLCI to trade between 1,740 and 1,820 points during the quarter, as technical indicators showed overbought signs.
Low said Hong Leong Investment maintained its KLCI year-end target at 1,760 points.
“Based on the technical indicators, we believe that the upside could be limited, as weekly Stochastics oscillator is overbought and weekly MACD histogram is indicating that the momentum is weakening.
"Locally, trading interest in heavyweights is expected to slow down, as most of the macroeconomic catalysts have been priced in. Also, softer crude oil prices and weak ringgit may dampen domestic trading theme," Low said.
COMFORT (2127), GADANG (9261), GHLSYS (0021), JCY (5161),