Sell-off in tech stocks on Bursa seen to be overdone

Tradeview Capital chief investment officer Nixon Wong

KUALA LUMPUR: The sell-off in tech-related stocks on Bursa Malaysia this year may have been overdone, but a rebound might be on the cards soon, according to fund managers contacted by StarBiz.

“There could be a rebound in the short term, following the rebound in the United States. The sector may have been oversold and priced in most of the negatives,” said Tradeview Capital chief investment officer Nixon Wong.

Year-to-date, tech-related stocks on Bursa Malaysia such as Unisem (M) Bhd, Malaysian Pacific Industries Bhd, Inari Amertron Bhd, Pentamaster Corp Bhd, MI Technovation Bhd and Aemulus Holdings Bhd have seen steep declines of around 30% to 70%, while the Technology Index has dropped close to 40%.

Last week, chip-related stocks in Japan, South Korea and Taiwan saw a sell-off, after further moves by the United States to curb China’s access to semiconductor technology.

Malaysian semiconductor-related stocks also saw accelerated selling pressure.

Wong noted that sector valuation was now trading at 10-year average price earnings (PE) of 18 times, according to Bloomberg consensus estimates, which may have priced in some potential earnings weakness in companies.

“However, compared to historical trends, the sector traded as low as 15 times blended forward PE during the selldown in March 2020. If a recession really happens, we may revisit that level again,” he cautioned.

Wong also noted that the ringgit had weakened significantly against the greenback, which provides some buffer or downside support to tech companies’ earnings (who are mostly exporters).

He added that the supply chain reconfiguration as a result of the trade diversion due to the US-China trade war may be positive to selected Malaysian tech companies and boost their sales order volume.

“We still keep a cautious view on the sector, whereby there may still be volatility with negative headlines on stubbornly high inflation data, hawkish US rate policies and recession fears, which have capped recovery in growth sectors like tech,” said Wong.

Meanwhile, Rakuten Trade head of equity sales Vincent Lau thinks that the sell-off in tech-related stocks on Bursa Malaysia has been overdone and it is a matter of time before sentiment turns positive.

“There may be a bit more downside but this should be near the bottom. We remain cautiously optimistic.

“Valuation-wise, we think they’re oversold and are due for a bounce. PEs have come down to more realistic levels,” Lau told StarBiz.

He noted that the general market view is that in the second half of 2023, the chip sector may see a recovery when inventories have been run down.

“Tech companies are still seeing earnings growth, albeit at a slower pace. Valuations are looking attractive for those who have a long-term investment horizon,” said Lau.

He also pointed out that the local bourse was beaten down somewhat by general election jitters, which should be resolved soon.

“Negative news such as planned headcount reduction by American tech companies and rising US-China tensions are likely to be priced in.

“Earnings drivers for the tech industry will be growth in electric vehicles, data centres, and increasing business and manufacturing automation,” said Lau.

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