Technology stocks

Tech stocks emerge as the main losers in a possible US rate hike

KUALA LUMPUR (Jan 11): Bursa Malaysia tech stocks became the biggest losers on Tuesday Jan 11, drawing inspiration from US tech stocks which fell on Monday amid expectations of an earlier-than-expected rate hike.

It was a sea of ​​red for the sector led by Malaysian Pacific Industries Bhd (MPI), which was the big loser, closing RM 1.34 or 2.8% lower at RM 46.56.

ViTrox Corp Bhd slipped 82 sen or 4.29% to 18.30 RM, KESM Industries Bhd lost 38 sen or 3.02% to 12.22 RM, Greatech Technology Bhd fell 33 sen or 5.31% to RM 5.88; UWC Bhd slipped 28 sen or 4.91% to 5.42 RM.

Kobay Technology Bhd ended the day down 23 sen or 3.95% at RM 5.59, while Pentamaster Corp Bhd closed down 20 sen or 3.92% at RM 4.90. D&O Green Technologies Bhd also finished 20 sen or 3.54% lower at 5.45 RM.

Virtually no tech action was spared, as Unisem (M) Bhd fell 16 sen or 4.16% to RM 3.69; MI Technovation Bhd lost 16 sen or 5.56% to RM2.72; Inari Amertron Bhd lost 11 sen or 2.93% at RM3.64; PIE Industrial Bhd lost 11 sen or 3.06% at RM 3.48, and Frontken Corp Bhd lost 10 sen or 2.65% at RM 3.67.

“In this environment of expected rising interest rates, technology stocks are not very favorable. Investors are selling tech stocks and buying recovery-themed plays, ”Loui Low, research manager of Malacca Securities Sdn Bhd told theedgemarkets.com

He expects the downtrend in tech stocks to continue in the near term as investors focus more on recovery themes and bank stocks as the Federal Reserve prepares to raise rates. interest.

However, he felt that investors should buy the long-term downside, as it is still positive on the growth outlook for tech stocks due to the strong demand for tech-related products such as semiconductors, 5G. and Internet of Things (IoT) devices. in the next three to five years.

Meanwhile, Areca Capital Sdn Bhd CEO Danny Wong said the downtrend in tech stocks on Tuesday was due to the ripple effect of the decline in US tech stocks.

“Over the past few days, we can see tech stocks adjusting their valuations. But it’s a healthy fix, ”Wong told theedgemarkets.com.

Agreeing with Low, he is optimistic about the long-term outlook for the tech industry, as players are expected to profit from the growth trend of IoT, 5G, EVs and automation.

“I remain positive on the tech sector, especially for players capable of generating higher revenue and market share over the next two to three years,” Wong said, adding that investors should buy on the weakness.

Rakuten Trade’s chief research officer Kenny Yee also believed that Bursa Malaysia’s tech stocks are inspired by the volatile Nasdaq, as most tech stocks trade at high valuation premiums.

“The outlook is expected to remain volatile,” he told theedgemarkets.com.

In a note released Monday, UOB Kayhian analyst Desmond Chong said that while the tech sector still benefits from a double supply-demand shock, the industry’s risk-return seems less compelling, with valuations taking into account strong earnings expectations.

According to him, following strong stock market performance overall (+ 84% in 2020 and + 38% in 2021), the forward price / earnings (P / E) valuations of assembly and semi-testing equipment – outsourced conductors (OSAT) and semiconductor production Players (SPE) are trading at nearly +2 standard deviation (SD) from their average levels over five years, which are also close to previous valuation peaks included between + 2SD and + 2.5SD.

“Tactically, we are encouraging investors to buy on weakness, following less convincing risk-return sector valuations and strong earnings expectations, as past performance shows stretched valuations do not last longer than six months.

“With inflation numbers stubbornly high (and hence rising bond yields), high valuations could be eroded, as investors typically become more risk-averse by shying away from high-price-to-earnings-ratio stocks in a market environment. increased inflationary fears, “he said.