Geopolitical uncertainties have weighed on local technology players, leading to a subdued performance, iFAST Capital's Khaw said.
PETALING JAYA: Are local technology stocks trapped in a silo as they lag behind global peers?
The Technology Index of Bursa Malaysia has now fallen closer to its lowest level in two years.
To be exact, the index has been on a downtrend since mid-June 2024 as the sector saw a net foreign fund outflow of RM513mil, while retail investors net sold RM255.8mil worth of securities last year, according to a MIDF Research report.
And now investor sentiment could sour further after US president Donald Trump’s announcement yesterday that he was looking to impose tariffs on the imports of cars, semiconductor chips and pharmaceuticals beginning April.
Ranked sixth in the world for semiconductor exports, Malaysia reportedly exports about 20% of its chips to the United States.
Therefore, Trump’s threat of imposing at least 25% tariffs on chips is indeed concerning for Malaysian semiconductor players, who have not fully benefited from the strong rebound in global semiconductor sales last year, when sales reached US$600bil for the first time.
Maliana Shaharudin, technology analyst at BIMB Securities, told StarBiz the actual impact from Trump’s tariffs will depend on whether Malaysia’s technology sector can benefit from a trade diversion.
This is because some companies will seek to bypass tariffs by shifting supply chains to South-East Asia as they reassess their supply chains.
Meanwhile, iFAST Capital research analyst Kevin Khaw Khai Sheng said the recent global artificial intelligence (AI)-driven rally, which has driven investors into Big Tech firms and now Chinese tech names after DeepSeek was launched, has not directly fuelled local market sentiment due to the fact that Malaysian technology counters are generally less exposed to AI-related themes.
Instead, geopolitical uncertainties have weighed on local technology players, leading to a subdued performance, he told StarBiz.
“We anticipate this trend to persist in the near term, given the unpredictability of Trump’s stance – especially in light of Malaysia’s recent entry into the BRICS bloc.
“Export-oriented technology players are expected to adopt a cautious approach, making significant capital expenditure expansions unlikely amid prevailing uncertainties.
“However, the sector’s current development is expected to remain stable, supported by government policies that provide a safeguard against downside risks.”
The move by the “tariff man” could upend HSBC Research’s view that the local tech sector, which has seen a much slower recovery in semiconductor production than tech-exposed peers like Taiwan and South Korea, may be about to turn the corner.
“The lagged recovery cycle along the tech supply chain for Malaysia suggests some near-term tailwinds on the trade front.
“Indeed, recent high frequency trade data have indicated a strong pick-up in electronic export momentum, though it was weighed down by commodity exports,” the bank stated following the country’s fourth-quarter gross domestic product announcement last week
Looking ahead, Khaw said the earnings season for the fourth quarter of 2024 (4Q24) will be crucial for the local technology sector.
The obvious risk is that disappointing earnings results could weigh on valuations.
As a result, investors should brace for volatility in technology counters during the upcoming earnings release season, he warned.
Maliana said a strong earnings beat in 4Q24, especially from leading tech players, could reignite investor interest in the sector companies.
“Bursa’s technology sector’s underperformance so far might also reflect broader market concerns for 2025, such as slower global growth, persistent geopolitical risks, and fund flows favouring more defensive sectors.
“Nevertheless, we are still expecting better overall 4Q24 results for technology, on the back of a better US dollar-ringgit rate as compared to the previous quarter,” according to her.
However, if the 4Q24 technology results disappoint, Maliana opined the sector may remain under pressure as investors become even more cautious.
Of the companies that have filed their results, Malaysian Pacific Industries
Bhd and Greatec Technolgy Bhd have posted improved quarter-on-quarter numbers in the current corporate earnings season.
Khaw, however, recommends investors adopt a wait-and-hold approach toward technology stocks for now.
While the technology stocks offer attractive valuations and solid fundamentals, he said macroeconomic uncertainties are likely to weigh on developing markets and growth counters, keeping pressure on the technology sector.
“The next key catalysts will likely come from greater clarity on macro developments, particularly Trump’s stance toward Malaysia and Asean, as well as continued support from the government,” he added.
Maliana calls for a selective approach in investing in technology stocks, pointing out that valuations for some Malaysian technology stocks are becoming attractive.
“While the sector may not be a full value trap, sentiment will likely remain cautious unless a strong earnings turnaround materialises. Prioritise resilient technology companies with strong fundamentals and solid earnings growth and wait for better entry points, especially should investor sentiment turn negative,” she added.
Meanwhile, seasoned investor Ian Yoong argued that the weak local stock market performance, beyond technology counters, was not just an issue of fundamentals or geopolitical pressure.
He said syndicate-driven short-selling and share price manipulation could be a reason behind the underperformance of local stocks as compared to rising market abroad.
Yoong pointed out that some notable counters that experienced share price decline have been impacted by poor results and negative newsflow.
“But it appears there are counters that have fallen victim with little negative development.
“The short selling mechanism is akin to trying to put out the fire with kerosene,” he said.
Companies like YBS International Bhd and Notion VTEC Bhd have seen their share price dive last week under heavy selling with the former issued a unusual market query by the exchange.
