KUALA LUMPUR (Oct 17): RHB Investment Bank Research has said that investors should maintain a yield-centric defensive posture while prioritising capital preservation and remaining alert for medium-term opportunities.

According to a market strategy note on Monday (Oct 17), analyst Alexander Chia remains cautious about Malaysia's outlook for the equity market in the coming quarters as growth prospects in 2023 may be clouded by macroeconomic worries and extended hawkish monetary policy by the US Federal Reserve.

He added that the imminent 15th general election may be a near-term source of volatility but should ultimately be a market-neutral event, as long as the rule of law and good governance principles are adhered to.

RHB kept its "overweight" stance on banks, non-bank financial institutions (NBFIs), healthcare, oil and gas (O&G), basic materials, gaming and technology, while it was "underweight" on rubber products.

Its top picks for banks were CIMB Group Holdings Bhd (target price [TP]: RM6.50), AMMB Holdings Bhd (TP: RM4.60), and Alliance Bank Malaysia Bhd (TP: RM4.20), while its top picks for NBFIs were Allianz Malaysia Bhd (TP: RM16.60) and AEON Credit Service (M) Bhd (TP: RM15.70).

RHB Research' top O&G counters were Bumi Armada Bhd (TP: 59 sen), Coastal Contracts Bhd (TP: RM2.35), and Yinson Holdings Bhd (TP: RM2.91). Meanwhile, its top pick for basic materials was Press Metal Aluminium Holdings Bhd (TP: RM5.73).

Technology stocks favoured by RHB Research were Malaysian Pacific Industries Bhd (TP: RM36.20), CTOS Digital Bhd (TP: RM2.22), and Coraza Intergrated Technology Bhd (TP: 93 sen).

According to Chia, key stock selection criteria should include companies with robust balance sheets, pricing power, captive customer bases, recurring demand, the ability to pass through higher costs, and a strong environmental, social and governance profile.

"We trim our end-2022 FBM KLCI target to 1,510 points (from 1,580 points), after ascribing a lower 14.5 times (from 15 times) price-to-earnings ratio to FY23 earnings per share to reflect the less favourable operating environment ahead.

"We expect markets to remain volatile and investors should priortise on ensuring sufficient liquidity, to take advantage of market weakness with medium-term investment objectives," he commented.

On possible rerating catalysts, Chia expects the US hiking cycle to continue through first half of 2023 with the federal funds rate (FFR) expected to peak at 4.5% to 4.75%.

"However, we are unable to rule out the possibility of the terminal FFR rising further should inflationary pressure prove to be stickier than expected due to the tight US labour market and rising wages (offset by easing commodity prices).

"Such a scenario would come at the expense of risk assets, with odds lengthening on the probability for a soft lending.

"A key event to monitor is the 20th National Congress of the China Communist Party that kicked off on Oct 16 as the party is expected to endorse a third term for President Xi Jinping and offer clues on the zero-Covid policy," it said.