KUALA LUMPUR (March 20): Geopolitical events will continue to affect investors' sentiment on the Malaysian market, according to MIDF Amanah Investment Bank Bhd Research, which has advocated for a returns-generating strategy amid a period of high volatility due to the external uncertainties.

In a 2Q Outlook note today, the research house said its top picks for the remainder of the year include MBM Resources Bhd, Cahya Mata Sarawak Bhd, Muhibbah Engineering Bhd, AirAsia Group Bhd and IHH Healthcare Bhd based on their potential for price appreciation.

The research house also prefers stocks with decent dividend yield expectations such as Deleum Bhd, CIMB Group Holdings Bhd, Malayan Banking Bhd, UOA Development Bhd and UEM Edgenta Bhd.

MIDF said the external factors that could influence the market include the indications of slower growth in China, as the official manufacturing purchasing managers index (PMI) remained in contractionary territory in February.

It said the PMI remained below the 50-point threshold for three consecutive months, mainly due to uncertainty over the trade talks between the US and China amid the lack of details on the arrangements.

Besides China, there is also the issue with Brexit in the UK as well as the revival of issues in the Korean Peninsula, which saw North Korea commencing the rebuilding of a missile launch facility which was partly dismantled in July last year.

"Apart from the trade war, geopolitical risk deepens in 1Q19 as the Trump administration continuously threatens Iran and Venezuela with sanctions, the nuclear clash between the US and North Korea, Brexit, the 'Yellow Vest' in France, the Catalonian crisis and others," said MIDF.

Despite these events, the research house expects trading activities in the local market will remain healthy, as activity was seen to pick up after the Chinese New Year break, noting that the average daily volume traded went up to 2.8 billion shares from 2.4 billion shares.

"The investors' interest [has] been leaning towards the small and midcap arena, where the FBM Small Cap Index has gained 14.3% on a year-to-date basis," it said.

Most sector indices saw gains as at early March, led by the energy, construction and telecommunications sectors, indicating a gain for the year, said MIDF.

"We opine that corporate Malaysia will still see decent earnings growth. We maintain our FBM KLCI year-end target at 1,800 points," it said.