PETALING JAYA: The bouncing back of local technology stocks is likely to continue on good growth prospects of companies but this will not be without some volatility in between.
Rakuten Trade head of equity sales Vincent Lau said the key thing now was the performance of the US technology index – the Nasdaq Composite.
“If this stabilises, our technology stocks will follow suit and vice versa,” he told StarBiz.Local technology and technology-related stocks staged a general rebound yesterday after suffering steep declines recently, taking their cue from the United States.
The Nasdaq ended last week in negative territory after investors dumped its counters on worries that a soon-to-happen hike in interest rates will impact technology stocks which are thought of as interest-rate sensitive stocks.
To be sure, year-to-date Bursa Malaysia’s Technology Index has fallen more than 12% versus the broader FBM KLCI which is down less than 1% over the same period.
The Nasdaq has shed about 4.8% year-to-date.
“I still like technology stocks and the sector remains my preferred sector on Bursa,” Lau said.
He said the upcoming results season could provide some catalysts for the overall sector and cited the ongoing global chip shortage, tensions between the United States and China as well as the sustainable growth of cloud computing and automation as factors which will continue to lend potential to technology and technology-related stocks.
“These factors give the companies at least a three-year earnings visibility window.Certainly, the valuation of technology stocks have become more compelling now after the recent selldowns,” Lau said.
In 2021, technology firms had been one of the star performers alongside gloves, gaining over 80% on average.
They were up almost 40% last year.
Areca Capital CEO Danny Wong also liked the sector, saying that generally, technology stocks were expected to continue to see gains after being sold down, especially those with good earnings visibility.
“I think the outsourced semiconductor assembly and test or OSAT, companies will do well,” he said.
In a report to its clients recently, UOB Kay Hian Research said orders and enquiries by multinationals within the technology sector “have piled up” after the lockdowns, which was partially reflected in the top-line of local technology players in the first nine months of last year.
“Tactically, we advocate investors to buy on weakness following the less compelling risk-reward industry valuations and strong earnings expectations, as the precedent performance shows that stretched valuations do not last more than six months.
“With the stubbornly high inflation numbers (and hence rising bond yields), high valuations could be eroded as investors typically turn more risk averse by rotating out of high-price earnings stocks amid increased inflation fears,” it said.
For OSAT exposure, Inari is UOB Kay Hian’s top pick as the research house expects it to register a superior three-year net profit compounded annual growth rate of 37% and is also banking on the company’s further growth plans which, it said, could include merger and acquisitions.