After the lows seen in March, investors rushed back into equities, lured by strong rallies in the global equity markets. “From an initial focus on undervalued blue chips, investors inevitably extended their scope to smaller growth stocks,” says Thomas Yong, CEO of Fortress Capital Asset Management (M) Sdn Bhd.

However, markets all over the world have pulled back in the last two weeks as investors turned cautious. “There will be additional volatility from this point forward as the markets reacts to new macroeconomic data. The recent downgrade of global GDP forecast for this year to -2.9% by the World Bank is an example [of an occurrence] that triggers profit taking,” adds Yong. Gerald Ambrose, managing director of Aberdeen Asset Management Sdn Bhd, notes that "The nervousness on the state of the world’s economy has started to creep back." Markets retraced ahead of the US Federal Reserves meeting today (June 24), says Chris Eng, associate director of OSK Research Sdn Bhd. “Speculators, especially hedge fund managers, have taken profit from the markets to increase their liquidity levels in view of a possible change in monetary policy,” he says.

So are there opportunities in this pullback? The retracement of the markets hasn’t changed the stock picks of the three men. Eng recommends both cyclical and defensive stocks, and maintain stock holdings in counters like Axiata Group, Genting Malaysia, WCT, Wah Seng, Mudajaya and Lion Industries. On the other hand, Ambrose, who holds a bottom-up investing approach, continues to see values in bigger counters like Aeon, Public Bank, Hong Leong Bank, Panasonic (M) and BAT. “For the smaller companies, we like Aeon Credit Services, YNH and SP Setia,” he adds.

Yong says that they continue to to pick stocks based on the premise of value investing, but opportunities of buying stocks that are exceedingly cheap [low valuations in terms of price-to-earning or price-over-net tangible asset per share] are certainly more limited now [than a few months ago]. Examples of some of these stocks that they held earlier were IJM and MMC.

Choong Khuat Hock, director of research for Kumpulan Sentiasa Cemerlang Sdn Bhd, who views that there’s more downside risk in the near term, has moved from the cyclical sector to the defensive sector. “We anticipate prospects in the rubber glove industry.”

In terms of global markets, fund managers continue to see potential in the emerging markets, which will lead the global recovery. Choong prefers the Hong Kong and Chinese markets on China’s economic recovery and is looking at their infrastructure sector. Yong says,“These markets have risen sharply in the last couple of months, but because the fall in prices in these markets were very much steeper last year, they still offer very good value.”