PETALING JAYA: As a flattish market in the near term does not bode well for a “buy and hold” strategy, MIDF Research advised the investors to focus on velocity and volatility of sectors and stocks to whither uncertainty.
In a strategy report today, the research house said it recommended a trading strategy focusing on velocity and volatility which is divided into four quadrants, namely “opportunist”, “trading”, “buy and hold” and “bullets”.
Overall, MIDF Research said it observed that construction players are the most suitable for a “trading” strategy due to their high velocity and high volatility.
It noted that construction stocks make a huge part of this quadrant, which include Malaysian Resources Corp Bhd, WCT Holdings and Gamuda Bhd.
For aviation, MIDF believes that AirAsia Group will suit well for a trading strategy too.
“With ample liquidity and a healthy newsflow driven price volatility, a trading portfolio would be ideal to generate returns amidst a ‘flattish’ movement of the benchmark indices.
“Liquidity would support ease of trading movement and the newsflow would provide the incentive to take trading position towards ‘sell high’ and ‘buy ‘low’ investment decision process,” it noted.
The research house said other sectors, such as rubber gloves fit to be used as “bullets” for the execution of the “opportunist” trading strategy.
MIDF said, this “opportunist” quadrant describes stocks that are relatively have low traded volume and highly volatile price movements, and stocks sitting in this quadrant includes YTL, UEM Sunrise, Sunway Construction and Cahya Mata Sarawak.
“All of these are great stocks to be included in the portfolio, but due to low liquidity, investors have to scan the market sentiment and wait for an opportunistic time to buy these stocks, wishing for Lady Luck to show herself.”
MIDF noted that the “bullets” quadrant describes stocks that relatively have high liquidity and low price volatility, while “buy and hold” describes stocks that are relatively have low traded volume and less price movements.
Stocks sitting in “buy and hold” quadrant includes UOA Development, Nestle and KKB Engineering.
The research firm said the FBM KLCI has been on a flattish trend so far this year with a year-to-date growth of less than 1% but expects earnings to grow by mid single-digit amid supportive economic policies.
Overall, it reiterated its FBM KLCI year-end 2019 target at 1,800 points.