KUALA LUMPUR (Dec 9): Affin Hwang Capital Research has maintained its “Neutral” rating on the FBM KLCI with an end-2020 target of 1,660 points and said despite the KLCI's underperformance over the past 2 years, valuations remain unattractive vis-a-vis regional markets, leaving limited impetus for capital inflows, a key driver to the KLCI.

In a strategy note today, the research house said a challenging macro backdrop and an extension of ringgit weakness will make it less compelling to own Malaysian equities.

“Nevertheless, we do not expect sharp downside given the KLCI's defensive attributes and its relatively attractive dividend yield of 3.6%.

“We continue to be positioned defensively and after the sharp rebound in small caps in 2019, stock selection will be even more important in 2020,” it said.

Affin Hwang said it favours the EMS sector also for its strong growth prospects, and Rubber Products (upgraded) as a sector laggard but also as stronger earnings growth resumes.

It said plantation is upgraded to Overweight as demand-supply dynamics are favourable.

“Insurance is downgraded to Neutral in view of weaker premium growth. Our sector underweights are in Auto (downgrade) and Media,” it said.

Affin Hwang’s top Buys for 2020: QL Resources Bhd (TP: RM8.50), Serba Dinamik Holdings Bhd (TP: RM2.62), Kuala Lumpur Kepong Bhd (TP: RM26.00), Scientex Bhd (TP: RM10.50),

Apex Healthcare Bhd (TP: RM2.67), Axis Reit (TP: RM1.99), ATA

IMS Bhd (TP: RM2.00), Top Glove Corp Bhd (TP: RM5.20), Gabungan AQRS Bhd (TP: RM1.62) and ELK Desa Resources Bhd (TP: RM1.98).

“Upside risks: a trade deal, strong commodity prices and corporate earnings upgrades.

“Downside risks: a downgrade in the country’s sovereign rating, new taxes that could curb consumption spending and foreign sell-down in government bonds and a correspondingly weak ringgit,” it said.