THE recent tech stock sell-down on Bursa Malaysia could be just an over-reaction of concerns over a higher interest rate environment which is generally not favourable for growth stocks such as those from the tech sector.
This is contrary to expectation of lower global semiconductor sales after two years of robust demands that was sped up by the COVID-19 pandemic, according to MIDF Research.
“We opine that the fortunes of Malaysian tech sector are highly correlated to global demand for semiconductors,” the research house pointed out.
Regarding this, we are expecting that demand will stay solid in the next couple of years given the proliferation of computer chips in our daily lives from personal devices such as smartphones, laptops and wearables to electric vehicles, and internet of things (IoT) devices.”
Against such backdrop, MIDF Research reiterated its “positive” outlook on the technology sector as the importance of semiconductors and the companies that produce them cannot be understated especially as technology is going to play a much significant role than ever before.
“The arrival of 5G technology, increasing smartphone shipment, emergence of digital solution in business and growing EV (electric vehicle) market will continue to propel the positive outlook of semiconductors players throughout 2022,” projected the research house.
MIDF Research’s top pick for the technology sector is Inari Amertron Bhd (“buy”; target price: RM4.55) given the group’s exposure to growing RF radio frequency) content in 5G smartphones usages and adoption.
Additionally, the research house also likes MY EG Services Bhd (“buy”; target price: RM1.27) as it continues placing aggressive moves to ride the emergence of digital solution wave in businesses such as the automated driving test and training system (e-testing), COVID-19 breathalysers and cross-selling of travel insurance.
In a related development, MIDF Research attributed the recent dismal Nasdaq performance to the more hawkish stance of the US Federal Reserve’s December 2021 minutes on rate hikes and possible balance sheet reduction as the primary reasons that swayed investors from technology-heavy growth shares to value-oriented shares which are more favourable in a high interest rate environment.
“Looking into the recent correction in tech-heavy Nasdaq which fell as much as 19% from its all-time high in November, we opine that the pullback is a healthy retracement given that the fundamental stays intact,” noted the research house.
“Nonetheless, we think that once the selling fervour recedes, growth stocks such as Apple, Microsoft, Tesla, Nvidia (which are all cash-rich) will quickly rebound.” – Feb 3, 2022
