PETALING JAYA: A tech bubble resurfacing in the US equity markets may be the reason for the correction among technology stocks listed on Bursa Malaysia.
While the tech-heavy Nasdaq rebounded on Tuesday after the biggest back-to-back decline since December last Friday and this Monday, sentiment turned a bit more cautious, with reports warning of stretched valuations for tech stocks.
Bursa’s tech stocks saw a rebound yesterday after a sharp fall on Tuesday.
Analysts, although initially confounded by the sudden downward move in these technology stocks, said it was not such a surprising thing after all in hindsight.
However, they were not so sure if the correction would sustain itself in the coming days or if it would be a buying opportunity.
“Valuations are on the high side at the moment while exuberance is minimal or absent altogether. It can go either way because the investing public are also generally cautious at this point in time,” a technology analyst with a local research house said.
The correction may present an opportunity for the late comers to accumulate, said a broker.
“The fundamentals are still very much intact while if you take cues from the US, many of these tech names such as Apple and Amazon are on a better footing this year,” he said.
The abrupt fall on the Nasdaq on both days also affected sentiment on the Dow Jones Industrial Average and the S&P 500.
Valuations of growth-driven technology companies have soared in recent times on better expectations moving forward.
The Nasdaq Composite Index had gained by some 15% in the year-to-date period and now hovers near its all time high.
In fact, the research house noted that stocks had become closely correlated to safe haven plays, like bonds and utilities.
The momentous moves in the two trading days on the Nasdaq had reverberated throughout markets worldwide and technology stocks in markets elsewhere also saw declines along with the Nasdaq.
For the two trading days, the Nasdaq fell by as much as 4.38% at its lows but recovered by some 0.76% when trading resumed on Tuesday.
The Nasdaq consists of approximately 3,000 technology stocks and houses some of the key companies whose influence ranges far beyond US shores because of outsourced operations to other foreign companies or through direct equity stakes.
Some of these companies include mega-capitalised stocks such as Facebook, Apple, Amazon.com, Alphabet (the parent company of Google) and Microsoft. US tech stocks have posted decent earnings for the first quarter ended March 31.
In the latest World Semiconductor Trade Statistics’ Spring 2017 sales forecast, annual sales for this year and next year have been revised higher by 9.2% year-on-year (y-o-y) and 9.6% y-o-y to US$377.8bil (RM1.61 trillion) and US$387.9bil (RM1.65 trillion) respectively.
Higher growth rates have been assumed for all major semiconductor categories, with the largest growth stemming from the memory segment at 30.4% growth y-o-y.
Despite that, 2018 annual sales growth rate has been maintained at 2.7% y-o-y, with sensors contributing to the highest growth.
MIDF Research in a report dated June 8 noted that April 2017 saw worldwide sales of semiconductors surging by 20.9% y-o-y to US$31.3bil (RM133.35bil), the largest y-o-y growth since Sept 2010 when sales grew by 25% y-o-y.
MIDF Research has maintained a positive outlook stance on the technology sector as a whole.
Read: Why major tech stocks took a bath