MIDF: Pullback in global tech stocks a temporary blip


THE pullback in global technology stocks is expected to be a healthy retracement given the sector’s fundamentals stay intact, according to MIDF Amanah Investment Bank Bhd.

The investment bank stated the more hawkish stance of the US Federal Reserve’s December minutes on rate hikes and possible balance sheet reduction is the primary reason that pulled investors away from technology heavy growth shares to value oriented shares which are seen as more favourable in a high interest rate environment.

The tech-heavy Nasdaq index has fallen as much as 19% from its all-time high in November.

“We think once the selling fervour recedes, growth stocks such as Apple Inc, Tesla Inc, Microsoft Corp and Nvidia Corp will quickly rebound.

“These big capital companies are cash rich and are able to roll-over their debt at prime rates unlike the smaller and leveraged companies which need to grow rapidly and struggle more to justify their valuations,” MIDF noted in sector report yesterday.

MIDF opined the rotation out of technology and into cyclical shares is just a temporary blip before return to normalcy in mid and longer terms.

As such, it maintains a ‘Positive’ call on the tech sector as the importance of semiconductors and the companies that produce them cannot be understated, especially as technology is going to play a much more significant role than ever before.

It emphasised the arrival of 5G technology, increasing smartphone shipment, emergence of digital solutions in business and growing electric-vehicle (EV) market will continue to propel a positive outlook for semiconductors players throughout 2022.

MIDF’s top pick for the sector is Inari Amertron Bhd, with ‘Buy’ call and a target price (TP) of RM4.55 given the company’s exposure to growing radio frequency contents in 5G smartphone usages and adoption.

The bank also has a ‘Buy’ on MyEG Services Bhd with a TP of RM1.27, as the e-government services provider continues placing aggressive moves to ride the emergence of digital solution wave in businesses such as automated driving test and training system (e-testing), Covid-19 breathalysers and cross-selling of travel insurance.

“We opine the fortunes of the Malaysian tech sector are highly correlated to global demand for semiconductors.

“We are expecting demand to 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 EVs, and Internet of Things devices,” it said.

It added that Malaysia’s external trade will continue to benefit from the post-pandemic recovery of the global economy.

In its “Fast & Furious: 2021 Review of External Trade” report, MIDF Research’s economics team projects exports will grow by 4.5% this year given the encouraging outlook of external demand for electrical and electronics (E&E), and commodity products export.

“Malaysia’s E&E sector contributed 39.3% or RM386.29 billion to Malaysia’s total exports in 2020.

“Malaysia accounted for almost 7% of total global semiconductor trade and 13% of global capacity in terms of back-end assembly tests and packaging,” it noted.