PETALING JAYA: Given the overall bullish outlook for next year, investors looking for a bargain would do well to look at small-cap stocks, according to MRR Consulting Sdn Bhd managing partner Ooi Kok Hwa.

In a recent interview with SunBiz, Ooi said he expected a rally in small-cap stocks next year, similar to what was seen in 2014.

“The Small Cap Index reached its peak of 19,334 points in August 2014. As of end-September the index was at 13,000 points, which is a drop of 33%, compared to the FBM KLCI. So if people are looking to buy small caps, they should do it now as they are currently undervalued.”

“If you are not confident in choosing particular stocks, then buy into any unit trusts that have a small-cap fund,” he said.

Blue-chip stocks are also a sound investment option, with Malayan Banking Bhd and CIMB Group Holdings Bhd being two of the safest options, according to Ooi.

Asked which sector investors should focus on, he said all sectors from construction to technology service providers have positive prospects next year, thanks to an expected uptick in the Malaysian economy and initiatives announced in the recently tabled Budget 2020.

The construction sector is expected to benefit from the number of development projects that were announced in the budget, such as the repair and maintenance of roads leading to Port Klang, the Kota Perdana Special Border Economic Zone logistics hub at Bukit Kayu Hitam and several other economic corridor development activities.

“The money that has been allocated to the construction sector is overall very positive as a lot of projects will continue to be developed. Overall spending will continue and stocks in the sector are already starting to see some trading interest,” Ooi said.

The plantation sector will benefit from the “Phase 1 deal” in which China will reportedly purchase US$40-50 billion (RM167-209 billion) in US agricultural products annually, which has prompted an uptick in soybean prices.

“This increase in soybean prices will lead to a recovery in crude palm oil (CPO) prices, and coupled with the B20 biofuel initiative coming in next year, stock levels will drop and overall prices will go up,” said Ooi.

As for the consumer sector, the increase in the minimum wage to RM1,200 a month, together with the incentives to boost employment should encourage higher consumer spending which will directly benefit stocks in the sector, Ooi explained.

The banking sector could, however, be impacted by an expected cut in the Overnight Policy Rate (OPR) by Bank Negara Malaysia next month, said Ooi.

“If you look at the KLCI trends, each time BNM cuts rates, our local market tends to go up about 1-2%. So, overall, it’s a positive thing. I also expect a higher loan growth for the banking sector, so that will help to offset the negative news of a rate cut,” he said.

Lastly, for technology stocks, the overall index is trending higher, said Ooi, driven by several initiatives and programmes being undertaken by the government to accelerate the digital economy.

The budget outlined a number of plans to improve the digital infrastructure of the country, such as the National Fiberisation & Connectivity Plan, introducing a 5G Ecosystem Development Grant and providing RM10 million to the Malaysian Digital Economy Corporation to train micro-digital entrepreneurs and technologists.