The prospects of higher rates by the Fed might be the reason behind the low investors’ interest 

by ASILA JALIL & ANIS HAZIM / Pic by BLOOMBERG

EARNINGS for the technology counters are still expected to grow despite the prospects of higher interest rates driving away investors’ interest from the sector as reflected in the fall in value of sector counters. 

The prospects of higher rates by the Federal Reserve (Fed) have driven earnings fearing investors out of equities and Nasdaq tech counters with the selling spreading to sector stocks on exchanges like Bursa Malaysia.

Malacca Securities Bhd head of research Loui Low told The Malaysian Reserve (TMR) that he expects investors will continue to favour technology stocks under the dovish environment. 

“Now when the environment could be shifting towards an interest rate hike environment, investors may shift their investments away from this sector as bond yields are spiking,” he said. 

However, unlike the rubber glove counters which saw their average selling price returning back to pre-pandemic levels, Low believes earnings of tech counters will still expand. 

He expects bargain hunting activities should emerge when prices of the counters have retraced around 20% from the peak of the Bursa technology index.

“However, the upside potential might be minimal, around 5% and 10%. It depends on the valuation approach inventors are pegging for the time being, and value will certainly emerge if there is another round of retracement down the road, maybe between 30%-40% pullback, that may provide a decent risk to reward opportunity for the investors,” said Low. 

Technology companies that were in the red on Monday’s close include KESM Industries Bhd which lost 36 sen or 3.03% to RM11.52, Vitrox Corp Bhd was down by 46 sen or 2.71% to close at RM16.54 and UWC Bhd was down by two sen or 0.40% to RM5.03. 

Kobay Technology Bhd’s share price slipped five sen or or 1.03% to RM4.80, D&O Green Technologies Bhd closed 19 sen or 4.04% lower at RM4.51 and CTOS Digital Bhd’s share price was down by three sen or 1.67% to RM1.77. 

The share price of D&O has fallen by some RM1.50 from a high of RM6.01 on Jan 3, 2022, while Inari Amertron Bhd is down almost 60 sen from its high of RM4.06 on the same date to RM3.44. 

Malaysian Pacific Industries Bhd (MPI) was down RM7.50 while Unisem (M) Bhd was down 94 sen on the same period to RM42 and RM3.20, respectively. The tech index closed down at 83.5 points on Monday from 97.5 points on Jan 3 this year. 

Rakuten Trade Sdn Bhd VP of equity research Thong Pak Leng said the volatility period for the tech counters is still unknown as there are many uncertainties. 

He said the act of selling off tech counters now may be a portfolio rebalancing move to entice funds to shift to other sectors. 

“Most fund managers bought tech stocks at low levels earlier, they are just taking profits at the moment as valuation of tech stocks are quite high. Probably as portfolio rebalancing to get funds to switch to other sectors,” he told TMR. 

Banks appear to be the main gainers from the potential higher rates with money flowing into names like Alliance Bank Malaysia Bhd, Affin Bank Bhd, AMMB Holdings Bhd after gains made by Malayan Banking Bhd, CIMB Group Holdings Bhd and Hong Leong Bank Bhd. 

While the share price may be under pressure, the fundamentals of the local tech sector remain good with the trade war and geopolitics issues between the US and China providing local companies an opportunity to capitalise, especially for companies in the automated testing equipment (ATE) and outsourced semiconductor assembly and test (OSAT) space. 

PublicInvest Research’s analyst Chong Hoe Leong said local tech sector players like MPI, Mi Technovation Bhd and Inari have recently set up their footprints in China. 

“This will enable the companies on the technology boom as OSAT and ATE segments are part of the semiconductor chain,” he added. 

The Semiconductor Industry Association (SIA) is projecting 9% year-on-year (YoY) sales growth for the global semiconductor industry in 2022 driven by higher demand. 

Most Malaysia SIA members are currently running at nearly full capacity to fulfil outstanding orders. 

The Malaysian government has identified the electrical and electronics industry as among the high impact industries that are integral to realign Malaysia’s growth in a sustainable trajectory while enhancing the nation’s footing in the global supply chain. 

Several technology-related international companies have made investments into the country which are expected to drive further investment interest in the future. 

Intel Corp announced its plans to invest more than RM30 billion for its Malaysia facility last month which is expected to generate 9,000 jobs. 

The investment will help expand Intel Malaysia’s operations across Penang and Kulim, Kedah.