KUALA LUMPUR (Jan 30): The recent market sell-off among small-cap counters and penny stocks on Bursa Malaysia during the first three weeks of the year should not deter investor confidence in looking for good fundamental stocks, according to RHB Research.

As investors continue to shop for growth, the research house in a strategy note on Tuesday argued that investors will continue to have a tendency to eye the more attractively priced space in the small- to mid-cap space as opposed to the expensive large-caps. 

"While the small- to mid-cap space is often preferred for higher growth prospects, a balanced pick, combined with value- and growth-focused stocks, would be appropriate in the current environment." 

As such, RHB called for a focus on earnings quality, margin preservation, cash flow, and yield generation as they would be paramount, especially in the backdrop of tense geopolitical conflict, cost escalation and demand uncertainty. 

Over half a dozen counters on Bursa, mostly small-caps, hit limit down in a span of two weeks in mid-January, as they were hit by heavy selling pressure amid negative sentiment and margin calls surrounding the market. 

Among the battered stocks included Rapid Synergy Bhd, YNH Property Bhd, Sarawak Consolidated Industries Bhd, Widad Group Bhd, Leform Bhd, Tanco Holdings Bhd, Jentayu Sustainables Bhd, Artroniq Bhd, Mercury Securities Bhd and Silver Ridge Holdings Bhd. 

Meanwhile, various economic blueprint and masterplans introduced by the government, such as the National Energy Transition Roadmap and the New Industrial Master Plan 2030, will continue to be the pillars of various investment themes and ideas going into 2024, RHB said. 

"Optimism about a stronger corporate earnings outlook on a low base in 2023 may continue to lend support to trading activities. We believe laggard plays on bottoming-out stocks will likely be another major theme realised on potential cyclical recovery and sector rotation," the research house added.  

RHB highlighted several industries that could be in favour in 2024, including consumer, construction, logistics, oil and gas, property, technology, and green energy.