PETALING JAYA: The correction in the technology sector, as evident from the heavy sell-off among technology darlings in the United States and Malaysia, is likely to be short-term in nature.
Experts believe the long-term prospects of technology stocks remained intact, and hence, will not derail the sector’s massive rally that began a year ago.
An analyst who spoke to StarBiz also dismissed the notion that the technology sector bubble is bursting, pointing out that investors would eventually return to technology-related stocks.
“Take it as a buying opportunity, but only buy stocks with good earnings prospects, ” he said.The technology-heavy Nasdaq index entered into the correction territory after sliding by over 10.5% from its peak on Feb 12.
A continued downtrend led by heavyweights such as Apple Inc, Facebook Inc and Amazon.com Inc took place on Wall Street amid an improving sentiment on the economic recovery, boosted by the US$1.9 trillion Covid-19 relief bill that was approved by the US Senate recently.
The unfavourable sentiment arising from the US technology sector correction has also spilled over into Malaysia.
Bursa Malaysia’s Technology index has fallen by almost 11.8% since its record-high level on Feb 25.
Yesterday, on the back of investors buying the dip, the index recovered marginally as it closed 0.43% higher.
A total of 18 stocks under the 41-stock index advanced, while 17 stocks declined.
MIDF head of research Imran Yassin Mohd Yusof (below) described the current correction as “healthy” for the technology sector.
“I believe the correction is largely because of the rotational play in the market where investors rotate into laggard stocks, given the recovery in economic prospects.
“This is why we see banking stocks are on the rise. Not only that, increasing crude oil prices have also spurred the interest in oil and gas-related counters, ” he told StarBiz.
MIDF Research has a “neutral” stance of the technology sector’s outlook, given the high valuations of technology stocks following a year-long rally.
A quick check showed that the technology sector’s big boys such as Pentamaster, Vitrox, Frontken and Greatech command a price-to-earnings ratio of above 50 times, despite the share price correction in the past few weeks.
However, Imran said the research house remains positive on the technology sector’s earnings prospects, considering the increasingly high expenditure on digitalisation across the world.
“Once the current correction brings valuations to a more palatable level, supported by good earnings performance in the coming quarters, the rally is expected to continue, ” he said.
Echoing a similar view, Fortress Capital Asset Management CEO Thomas Yong (pic below) said the Malaysian technology sector is ready for more valuation correction.
“The stock market has rotated to the recovery names, as rising long-term yields are negative for growth names like the technology sector, ” he said.
However, he did not think that the technology sector rally is over, considering the rapidly rising digital transformation globally and the demand for technology products.
“I believe the outsourced semiconductor assembly and test (OSAT) and automation equipment players will react strongly to the US technology stocks rebound as their major customers are mainly situated there.
“The valuation correction since early this month is reaching a reasonable level, with a strong growth ahead in 2021.
“Since Malaysia is more involved in supporting the major technology players, they are poised to continue rallying once the sell-off in the US is over, ” he said.
An analyst expects the US Nasdaq index to once again scale back to the 14,000 point level by year-end, once the short-term technology rout fizzles out.
“The recovery in Nasdaq would have a positive spillover effect on Malaysian technology stocks, ” he said.
The Nasdaq index closed at 12,609.16 points on March 8, nearly 11% down from its all-time-high of 14,095.47 points on Feb 12.