KUALA LUMPUR (Jan 11): Technology stocks on Bursa Malaysia emerged as top losers on Tuesday (Jan 11), taking a cue from US tech shares which tumbled on Monday over expectations of a sooner-than-projected rate hike.

It was a sea of red for the sector led by Malaysian Pacific Industries Bhd (MPI), which was the top loser, closing RM1.34 or 2.8% lower to RM46.56.

ViTrox Corp Bhd slid 82 sen or 4.29% to RM18.30, KESM Industries Bhd lost 38 sen or 3.02% to RM12.22, Greatech Technology Bhd dropped 33 sen or 5.31% to RM5.88; UWC Bhd slipped 28 sen or 4.91% to RM5.42.

Kobay Technology Bhd ended the day 23 sen or 3.95% lower to RM5.59, while Pentamaster Corp Bhd closed 20 sen or 3.92% lower to RM4.90. D&O Green Technologies Bhd also finished 20 sen or 3.54% lower to RM5.45.

Hardly any tech stocks were spared as Unisem (M) Bhd tumbled 16 sen or 4.16% to RM3.69; MI Technovation Bhd shed 16 sen or 5.56% to RM2.72; Inari Amertron Bhd declined 11 sen or 2.93% to RM3.64; PIE Industrial Bhd lost 11 sen or 3.06% to RM3.48, and Frontken Corp Bhd dipped 10 sen or 2.65% to RM3.67.

“Under this anticipated interest hike environment, technology stocks are not that favourable. Investors are selling down technology stocks and buying into recovery theme plays,” Malacca Securities Sdn Bhd head of research Loui Low told theedgemarkets.com

He expects the technology stocks downtrend to continue in the short term, as investors will focus more on recovery themes and banking stocks as the Federal Reserves prepares to hike interest rates.

However, he opined that investors should buy the dip in the long term, as he is still positive on the growth outlook for technology stocks due to strong demand for technology-related products such as semiconductors, 5G, and Internet of Things (IoTs) devices in the next three to five years.

Meanwhile, Areca Capital Sdn Bhd CEO Danny Wong said that the downtrend of technology stocks on Tuesday was due to the spillover effect of US tech stocks' selling down.

“In the past few days, we can see tech stocks were adjusting their valuations. But this is a healthy correction,” Wong told theedgemarkets.com.

Concurring with Low, he is optimistic about the long term outlook for the technology sector, as players are set to benefit from the mega growth trend of IoT, 5G, electric vehicles and automation.

“I remain positive on the tech sector, especially for those players who are able to generate higher revenue and market share over the next two or three years,” said Wong, adding that investors should buy on weakness.

Rakuten Trade head of research Kenny Yee also reckoned that technology stocks on Bursa Malaysia are taking a cue from the volatile Nasdaq, as most tech stocks are trading at high valuation premiums.

“The outlook is expected to remain volatile,” he told theedgemarkets.com.

In a note on Monday, UOB Kayhian analyst Desmond Chong said although the technology sector is still benefiting from a twin supply-demand shock, industry risk-reward appears less compelling, with valuations pricing in strong earnings expectations.

According to him, following strong share price performances across the board (+84% in 2020 and +38% in 2021), the forward price-earnings (P/E) valuations of outsourced semiconductor assembly and test (OSAT) and semiconductor production equipment (SPE) players are trading close to +2 standard deviation (SD) to their five-year mean levels, which are also near previous peak valuations of between +2SD and +2.5SD.

“Tactically, we advocate investors to buy on weakness, following the less compelling risk-reward industry valuations and strong earnings expectations, as the precedent performance shows that stretched valuations do not last more than six months.

“With the stubbornly high inflation numbers (and hence rising bond yields), high valuations could be eroded as investors typically turn more risk-averse by rotating out of high-P/E stocks amid increased inflation fears,” he said.