Tech sector outlook remains uncertain


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KUALA LUMPUR: A significant rebound in Malaysian tech share prices is unlikely to occur in near term such as seen in glove counters recently, according to MIDF Research.

This is due to numerous short-term headwinds such as the rising interest-rate environment, inflation, geopolitical tensions and the recent US sanction on chip export to China, it said.

However, the research unit told StarBiz in a emailed response that despite the tech sell-off this year, it believes the sector remains attractive in the mid to long-term horizon.

This is due to the underlying demand for technology products and services such as 5G, Internet of Things, artificial intelligence, personal computers, cloud computing and electric vehicles stay solid in the digitalisation era, MIDF Research said.

“Also, the strong US dollar could cushion the current downward pressure on our tech stocks, whereby they are mostly the net beneficiaries.

“Valuation wise, tech companies under our radar such as Inari Amertron Bhd, Unisem (M) Bhd, Globetronics Technology Bhd and My EG Services Bhd, which at current price-earnings (PEs) of 22.2 times, 17.3 times, 12.7 times and 18.4 times, respectively, are reasonably cheap and attractive compared to the industry average, which is trading at PE valuation of 28.1 times,” it said.

The research unit also said any rally in Malaysian tech stocks as a result of cross-market spillover effect from Wall Street would be short term.

“We maintain our opinion that the outlook of tech stocks remain uncertain in near term,” said MIDF Research.

Tradeview Capital chief investment officer Nixon Wong noted that the fall in share prices of tech stocks in Malaysia was driven by factors such as growth sector de-rating led by the US interest rate hike cycle, rhetoric on global recession, United States-China trade war with more trade restrictions, weaker forward capital expenditure guidance and cost-cutting measures from major tech companies in the United States and Europe, as well as continuous Covid-19 lockdowns in China.

“These factors will have a direct and indirect impact on local tech companies’ earnings, going forward,” said Wong.

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

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

Malaysian semiconductor-related stocks also saw accelerated selling pressure.

Fund managers contacted by StarBiz opined that the sell-off in tech-related stocks on Bursa Malaysia this year may have been overdone and a rebound might be on the cards soon.

Wong said the sector may have been oversold and most of the negatives have been priced in. Meanwhile, Rakuten Trade head of equity sales Vincent Lau believed it is a matter of time before sentiment turns positive as stock PEs have dropped to more realistic levels.

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