Tech stocks rally backed by liquidity

The lesson of the current pandemic and the race for 5G provide support for the growth of the tech sector, says expert


LOCAL technology counters are expected to continue rallying as the world evolves through digitalisation, particularly during the Covid-19 pandemic.

Aberdeen Standard Investments (M) Sdn Bhd country head Gerald Ambrose (picture) said the prices of tech counters have run ahead of analysts’ expectations.

“This is more on extra liquidity pumped into the world’s economies to stimulate activity because of the Covid-19 pandemic. It is very hard to tell when the rally will end — but the weaker the world economy, the more money they will print, which will lead to higher prices for Nasdaq stocks and others — until it ends in tears, probably by year-end,” he told The Malaysian Reserve.

He added that the ‘V’ shaped recovery in the global Purchasing Managers’ Indices — which have almost all moved above 50 (level) reading — is more likely due to rebuilding of inventories rather than a full recovery in demand.

Ambrose said investors generally prefer software producers that can command strong margins because they have pricing power.

Ambrose said the group likes and holds shares in companies like Inari Amerton Bhd and Pentamaster Corp Bhd.

Areca Capital Sdn Bhd CEO and ED Danny Wong remains positive on the tech sector’s long-term prospects.

“The lesson of the current pandemic — which led to the new norm — and the race for 5G provide support for the growth of the tech sector.

“While some of the counters look expensive and may be overvalued for now, I am selective about keeping some potential ones for the long term,” he said.

The Bursa Malaysia Technology Index (KLTEC) closed 0.02% higher at 56.63 points last Thursday, boosted by Notion Vtec Bhd, which also had the largest move — rising limit up by 43 sen or 29.86% to RM1.87.

Unisem (M) Bhd suffered the biggest drag with a 12 sen or 3.54% fall to RM3.27.

However, the KLTEC fell 3.34% to 54.74 last Friday, its biggest move since plunging 4.64% on June 15, in line with profit-taking across the board.

The FTSE Bursa Malaysia KLCI (FBM KLCI) closed 0.66% or 10.34 points lower last Friday, while the MSCI AC Asia Pacific Index declined 1.15%. Trading across Bursa Malaysia also reached a historic high of 26.65 billion units worth RM9.05 billion.

Inari Amertron contributed the most to the KLTEC’s fall with a 5.11% plunge, while Prestariang Bhd provided the biggest boost with a 14.3% jump. Trive Property Group Bhd gained the most at 100%.

The KLTEC has gained 66% in the past 52 weeks and 7.27% in the past five days. It’s trading at a price-to-earnings ratio of 49.6 times on a trailing basis and 33.1 times estimated earnings of its members for the coming year. Its members have a combined market value of RM48.8 billion.

Rakuten Trade Sdn Bhd VP of research Vincent Lau added that technology is the way forward, hence the interest in the counters, in addition to the impact of the Covid-19 pandemic.

“With the new norm of working from home among others, people start to look more into the technology counters. The rally in US tech stocks has also played a part in the local counters’ rally,” he said.

An analyst with a local brokerage said investors are generally invested in companies like Pentamaster, Inari Amertron, Dufu Tech Corp Bhd, Frontken Corp Bhd, UWC Bhd, JF Techonology Bhd, MI Technovation Bhd and Greatech Technology Bhd.