KUALA LUMPUR: Small and medium cap stocks on Bursa Malaysia Securities Bhd are expected to perform better this year after the 14th General Election (GE14), especially if Barisan Nasional (BN) remains in power.
RHB Research Institute Sdn Bhd head of Malaysia research Alexander Chia said the current market was heavily influenced by geopolitical factors of the country. As a result, many retail investors have decided to delay purchases, while institutional investors moved over to large cap stocks.
"This led the FBM KLCI to gain over 18 per cent more than the FBM SCI (Small Cap Index). Based on the current situation, if the BN government is still in power, we expect the political risk in the stock market will decline after May 9.
"After GE14, investors will return to the small and medium cap stocks as the global and domestic macroeconomic environment is expected to remain in good condition throughout 2018.
"We believe this is a great time for investors to review small and mid-sized stocks, most of which have returned to their attractive levels," he said after the book launch of RHB Top Malaysia Small Cap Companies 20 Jewels 2018.
Meanwhile, RHB Banking Group managing director and chief executive officer Datuk Khairussaleh Ramli said Malaysia's small cap counters could rise to a higher level and would be attractive to institutional and retail investors, supported by strong national economic fundamentals, higher world oil prices and ringgit recovery.
"At the same time, we also expect these small cap stocks to grow and become medium and large companies, thus helping to spur Malaysia's economic growth," he said.
Khairussaleh said six steps announced by the government in February to increase market attractiveness would also bring long-term positive effects to the mid and small cap counters, as well as boost retail interest in the local equity market.
Among the measures introduced were stamp duty exemptions for small and medium-sized companies, as well as liberalisation of financial regulations, and the introduction of total incentive-based trade.
The RHB 20 Jewels 2018 book features 20 listed small-cap companies on Bursa Malaysia which have the best performance and the potential for excellence.
The largest market capitalisation shares listed in the book, RM2.1 billion, belong to Sarawak Oil Palms Bhd, while the smallest is Nova MSC Bhd, with a market value of RM75 million.
Khairussaleh said 85 per cent or 17 of the 20 listed companies had market capitalisation of less than RM1 billion.
"The average price for the revenue and return on equity this year amounted to 14.9 times and 12.1 per cent respectively.
"As we continue to expand our customer base in the local and regional markets, this book will provide valuable investment ideas to customers to help them achieve their investment objectives," he said.
The book is part of the regional summary produced by the RHB research team in Indonesia, Hong Kong, Singapore and Thailand.