Underperforming mid- and small cap stocks will shine, says CIMB Research

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KUALA LUMPUR (Mar 15): Mid- and small-cap stocks, which have been underperforming the FBM KLCI as of year-to-date, have the potential to grow in the medium term, according to CIMB Investment Bank Bhd's equity research team. 

 

In a strategy note today, CIMB head of Malaysia research Ivy Ng said the FBM small-cap index has registered a negative return of 7.2%, underperforming the KLCI’s positive return of 3.4% year-to-date. 

 

However, she explained that this could be due to profit taking by investors on mid and small-cap companies ahead of the 14th General Election (GE14), following the strong 16% gain in the small-cap index in 2017. 

 

"We remain positive on the small-cap sector as we believe there are undervalued gems in this space, due partly to the lack of research coverage," she said. 

 

Ng said that research houses will start to expand their coverage of mid and small-cap companies as the Malaysian government introduced the small and mid-cap public listed company (PLC) research scheme in 2017. 

 

"There are also plans to channel some RM3 billion into the small-cap sector from government-linked investment companies (GLICs)," she added.  

 

On top of that, Ng said four out of the six measures announced by the Prime Minister back in Feb 2018, to boost market vibrancy, has taken off since Mar 1, 2018 which were stamp duty waiver for mid- and small-cap companies, waiver on trading and clearing fees for first-time individual investors for six months, liberalisation of financial rules, and the introduction of volume-based incentive trading.

 

"We are of the view that the new measures would help to boost retail interest in the Malaysian equity market and will be long-term positive for the small- and mid-cap sector as well," she said. 

 

CIMB's top three picks within the small-cap sector are CCK Consolidated Holdings Bhd, Berjaya Food Bhd and Bonia Corp Bhd.