Opportunity to reassess portfolio composition

PETALING JAYA: Can the FBM KLCI’s mini-rally in recent weeks sustain?

Hong Leong Investment Bank (HLIB) Research does not think the rebound is durable, pointing out that the stock market is “walking on thin ice” amid renewed volatility and fragile fundamentals.

“We view the current market rally to be increasingly disconnected from underlying fundamentals.

“The impact of US tariffs has yet to materialise meaningfully in hard data as well,” sais the research house

It also noted that seasonal weakness is historically seen from May to October, indicating the downside risk ahead.

“Considering all the above, we are not convinced that the current market uptrend is sustainable and advocate a tactical sell on strength strategy over chasing fear-of-missing-out-led gains.”

However, HLIB Research retained its FBM KLCI target of 1,690, based on a conservative 14.5 times price-earnings ratio.

It also kept its 2025 and 2026 KLCI earnings growth forecasts at 6.1% and 5.8% respectively, pending results from the upcoming corporate earnings season.

“On top of our tactical ‘sell on strength’ stance, we believe this is an opportune time for investors to reassess portfolio composition and lower beta exposure,” it said.

To navigate the current backdrop, HLIB Research said it is employing a barbell strategy – balancing high-dividend, large-cap defensive names with selective exposure to undervalued laggards.

As such, it refreshed its top picks by adding AMMB Holdings Bhd and Deleum Bhd, and removing Public Bank Bhd and Capital A Bhd from the list.

It noted that geopolitical concerns continue to cast a shadow, stating that despite early signs of easing US-China tensions, a quick resolution is unlikely.

HLIB Research added “markets appear too optimistic, having erased post ‘Liberation Day’ losses ‘too fast, too furious’.”

It highlighted that market participation remains tepid, with the average daily trading value slipping below RM2bil over most of the past three weeks, versus RM2.63bil in the first quarter of 2025.

“This is consistent with our ground checks with institutional clients... hesitancy seems to be rooted to lingering concerns around tariff developments,” the research house explained.