Chinese tech rally boosts sentiment towards local tech stocks

The local tech index rose 5% yesterday with money flowing back into tech counters 


LOCAL technology stocks will continue to be volatile although the upbeat trading sentiment in China tech stocks in the mainland and Hong Kong yesterday have helped put a floor to the downward trajectory in prices for the short term. 

The local tech index rose 5% yesterday with money flowing back into tech counters like Inari Amertron Bhd, Malaysia Pacific Industries Bhd (MPI), Greatec Technology Bhd, UWC Bhd, D&O Green Technologies Bhd, Genetec Technology Bhd among others on improved trading interest. 

While the fundamental outlook of Malaysian tech counters has been relatively good, investors’ sentiment has been negative due to the sell-off on tech counters on the Nasdaq and Chinese tech counters ahead of normalisation of US monetary policy and trade friction between the two competing economies. 

The selling of local tech stocks over the past three months has seen them drift into bear market territory from a technical perspective. Many inventors must be hoping yesterday’s price action on regional markets could signal a change in sentiment locally as well. 

China tech companies rallied on the mainland and Hong Kong exchanges (HKEX) after the Chinese government stated that it would support financial markets there to boost the economy. 

The statement came on the eve of the Federal Reserve (Fed) action on its interest rates, and after nervous investors dumped Chinese tech stocks on Monday and Tuesday on delisting fears and possible sanctions by the US due to Beijing’s close relations with Kremlin and lockdowns imposed in southern China under its “zero Covid” policy that would impact global supply chains. 

“Basically, the sentiment has now changed towards China’s tech counters. The tech stocks have dropped in value so much and China’s leadership has come out to show they are willing to change the market view on tech companies,” an analyst from Malacca Securities Sdn Bhd said. 

He also explained that it is good for the short-term since the outcome of the Fed’s meeting might not bring any impact towards tech companies as the market has priced in a rate hike. 

Analysts and Investors would be more concerned with the tone of the Federal Open Market Committee (FOMC) announcement. 

“If the tone of the meeting is going to change into less hawkish, that should benefit the markets but if the FOMC is signalling to increase rates faster than the big tech companies might be hit again,” the analysts said. 

Bursa Malaysia’s tech index fell 3.4% on Tuesday as Chinese tech stocks nose-dived in China and HKEX. 

For investors looking for “calmer” stocks, the analyst advised looking at defensive stocks such as utility companies which are more defensive. 

Other sectors worth a look at are producers of raw materials which may enjoy improved pricing power. 

The analyst also believes China measures to contain the spread of the virus would be quick and successful due to its experience of handling previous outbreaks. 

“China is good at combating the Covid-19 viruses so I don’t think this new round will be a long process. I think it should be easier to handle the situation now,” he added. 

Among the Malaysian tech companies that have penetrated into the Chinese market are MPI, Unisem (M) Bhd, Inari and QES Group Bhd.