PETALING JAYA: Global investors’ renewed flight to safe-haven assets and signs of “artificial intelligence (AI) fatigue” have weighed on Malaysian technology stocks, but market observers say the pullback appears cyclical rather than structural.
A head of trading at a local investment bank said the recent weakness reflects normal capital rotation after a strong rally in Big Tech, rather than a fundamental breakdown of the sector.
“We are seeing a clear rotation of global capital into safe-haven assets after a strong run in technology stocks.
“This is standard market behaviour – driven by valuation concerns, profit-taking, and a more cautious environment,” he told StarBiz on condition of anonymity. “It’s a cycle adjustment, not a sector breakdown.”
He said near-term sentiment toward technology stocks could remain soft as investors shift their focus from “AI narratives to earnings delivery.”
“Malaysian tech stocks, given their exposure to global flows, are feeling this pressure too,” he said.
“But let’s be clear: the fundamentals have not changed. Digitalisation, semiconductor demand, cloud infrastructure, AI deployment – these structural drivers remain solid. What we’re seeing is temporary noise, not a permanent shift.”
While volatility is expected to persist, he said the pullback could create opportunities for investors to accumulate quality technology stocks at more reasonable valuations, rather than chasing names at cycle highs.
“This looks like a healthy reset,” he said. “Stay disciplined, be selective, focus on quality. Don’t abandon the sector – just be smarter about how you approach it.”
BIMB Securities Research echoed a cautious near-term view on the sector, noting that the Bursa Malaysia Technology Index has lagged amid global “AI fatigue,” even as the broader market remained resilient.
According to BIMB Research, the FBM KLCI’s relative strength has been underpinned by a firmer ringgit and optimism ahead of the official fourth-quarter 2025 (4Q25) gross domestic product (GDP) release, with foreign fund flows remaining marginally positive.
“This defensive strength highlights Malaysia’s decoupling from the broader volatility seen in high-growth tech markets,” the research firm said.
It added that near-term market direction is likely to be driven more by domestic catalysts than global sentiment, with the GDP announcement expected to be the next key trigger for local equities.
With advance estimates pointing to GDP growth of about 5.7% in 4Q25, the research house expects investor interest to tilt further towards domestic-oriented sectors, particularly construction and utilities.
BIMB Research said the industrial production index (IPI) and upcoming labour data are likely to reinforce Malaysia’s resilient economic trajectory despite external headwinds.
Yesterday, the Statistics Department said Malaysia’s IPI expanded at a faster pace of 4.8% year-on-year in December 2025, up from 4.3% in November.
The department is also expected to release the unemployment rate for December 2025 tomorrow, following a new 11-year low of 2.9% in November, when 518,400 people were unemployed.
Meanwhile, Kenanga Research expects sentiment in the sector to improve as ringgit strength moderates and companies move past the 4Q25 results season, with the market having largely priced in the currency’s current strength.
“As ringgit strength takes a breather, the technology sector should see improved sentiment,” the research house said.
It estimated that a further 5% strengthening could trim earnings by 5% to 13% for key technology counters, although the actual impact is likely to be muted due to hedging and natural offsets.
The ringgit has gained about 12% against the US dollar from a year ago, trading around 3.93 at press time.
Kenanga Research remains neutral on the US dollar-ringgit pair, maintaining a year-end target of 3.95, following US President Donald Trump’s nomination of Kevin Warsh as the new Federal Reserve chairman, which reversed some of the US dollar de-basement narrative.
It said the broader market outlook remains constructive. It kept its FBM KLCI year-end target at 1,750, noting that in a bull case the index could reach 1,840, representing a potential 5% upside.
The research house said Malaysia’s equities could benefit from regional fund flows, as investors reposition away from Indonesia following recent MSCI investability warnings and Moody’s negative rating outlook.
Still, Kenanga Research cautioned that volatility is expected, but pullbacks could provide selective buying opportunities.
