INVESTORS should stick to defensive and value stocks next year as the external environment will continue to be volatile and uncertain, TA Securities said.
The research house expects the Kuala Lumpur Composite Index (KLCI) to peak near 1,023 points, or at best 1,062 points, in the first quarter of next year, possibly March, and then trend downward for the rest of the year.
As such, it advised investors to buy defensive and value stocks at the start of the year and then sell ahead of a deeper correction in the second half of the year.
After that, investors should return to defensive mode.
"Investors should find solace in defensive high-yielding low-beta stocks that provide good capital appreciation as well as resilient business fundamentals," it said in its market strategy report for 2009.
Its top defensive stock picks are Resorts World, PLUS Expressways, Carlsberg, Asia File, DiGi, TM, JT International, Public Bank, Berjaya Sports and KFC.
TA advised investors to also buy value stocks as the recent heavy bashing in the stock market had left many stocks trading at undemanding valuations.
"It would be worthwhile to look at some of these battered stocks to ride on the future growth when the current turmoil settles," it said.
Its top value stock picks are LCL Corp, KNM, Malaysia Airports, Kian Joo, QSR, Boustead Holdings, Gamuda, Tanjong, AirAsia and QL Resources.
It sees probable downsides for the KLCI next year at 775, 615 or 559 points.
TA is maintaining its "overweight" call on the consumer, oil and gas, gaming and plantation sectors and is "neutral" on the construction, telco and power sectors.
It is "underweight" on the banking, automotive, property and technology sectors as these will be affected by the softer outlook for private consumption.