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Preview of 2022: Tech Stocks Off To A Bad Start


Which sector in Bursa Malaysia will excel in year 2022? 

I think many investors opine that technology sector will continue to flourish in 2022 after doing exceptionally well in 2020 & 2021.

The reason is simple: 5G, electric vehicles, autonomous vehicles, Internet of Things, IR 4.0, smart devices, metaverse etc. 

These things are the future and it seems like they are still in their infancy stage. All of them need a lot more sophisticated chip.

Thus, semiconductor's demand is high in the foreseeable future.

However, as we step into the first two weeks of 2022, the stock prices of technology stocks in Bursa Malaysia drop like nobody's business.

Most of them suffers 15-25% slash in their share prices in the past one week alone.

Is this a golden opportunity to grab their shares or is it just the beginning of a prolonged downtrend?

If you previously were optimistic about tech sector in 2022, will you change your mind only after 2 weeks into 2022 to think that tech companies will not do well in 2022?

To me, most tech companies will have growth in sales and profit in 2022. What might change is their valuation.

I can't predict how the market will value them in 2022. I don't know whether their PE multiples will drop to below 20x as growth will slow down, or continue to be valued at more than 40x as demand is high.

If you think current drop is overdone and it will surely rebound strongly to achieve new height, then take a look at the Bursa technology index chart below.

From this historical chart, tech sector started its slow growth recently from 2013 to 2017, and then became stagnant in 2018 & 2019.

Covid-19 pandemic has propelled the index up steeply by more than 200% in 2020 and 2021.

If you think current correction in early 2022 is severe enough, it's actually just a 15% drop from its peak.

Does it mean that it still has more room to decline? The possibility is there but no one can predict the market.

It sounds like I'm pessimistic about tech sector in 2022. Actually I'm not.

I have a plan to add some tech stocks into my portfolio in 2022, ONLY IF their share prices fall to my desired level.

Apparently, all their share prices have fallen below that mark and I have made my move to buy one of them.

Apparently, its share price continues to drop after I have bought and it's a feeling of deja vu like my previous investment in Gtronic.

I held only 25% of cash heading into year 2022. I have to utilize it more carefully.

Other than technology sector, which other business sector can deliver profit growth in 2022?

Like most other countries in the world, Malaysia is not spared from inflation and there is a high possibility of interest rate hike this year. 

Thus, finance sector might have a chance to grow its profit in 2022.

Plantation sector definitely has a superb year in 2021 as the CPO price rose steadily from RM3,000/T at the beginning of the year to RM5,000/T at the end of 2021.

Last week CPO price breaks new high again above RM5,150/T so plantation companies have a good chance to achieve better profit in 2022 compared to 2021 if the CPO price does not crash below RM3,000/T.

Consumer, travel & leisure sectors are logically the beneficiaries of recovery from pandemic, as long as new variants of viruses do not wreak havoc again.

Airasia inevitably fell into PN17 status and its share price almost limit down. Domestic travel is the key to its revival in 2022 as I don't think non-essential international travel will do very well.

For GENM, its overseas operation recovered well in 2021 and local operation should follow in 2022.

Recent opening of its outdoor SkyWorlds Theme Park in Dec21 will bring in more sales but initial start up loss is expected due to high depreciation charge. 

For steel sector, I feel that even though they can still enjoy a good year in 2022, they will not surpass their profits in 2021 especially for the downstream players.

Brent oil price is now testing its 7-year high of USD86/barrel but there seems to be lack of interest in Oil & Gas stocks.

If the crude oil price can stay above USD70 in 2022, then upstream and midstream O&G companies should have a great year.

There is lack of mega construction projects since 2020. Thus the construction sector which was disrupted by multiple MCOs, looks rather dull in the past 2 years. 

Even though smaller construction projects still have to be given out to revive the economy, it doesn't look like construction companies will grow their profits significantly in this year to me.

Similarly, I feel like property sector in general might not do very well in 2022.

For logistic sector, I don't see any catalyst for it and I think it's neutral.

Industrial products such as packaging, EMS, furniture etc should do OK in 2022 unless there is sudden headwind such as significant depreciation of USD against MYR which seems very unlikely.

Lastly, medical gloves companies are confirmed to have lower profit in 2022 compared to 2021.

Everything I share here is just my own shallow view and of course it will not be accurate.

When I think that property sector might not do well, it doesn't mean that all property companies will not achieve profit growth. 

Furthermore, it's just about the growth in profit in CY2022 compared to CY2021, not the performance of their share price in 2022.

Tech companies will probably grow their profits further in CY2022 but their share price might drop in 2022 due to adjustment in valuation.

The profit of gloves companies will drop in CY2022 but their share price might increase due to oversold situation in 2021.

Share price in year 2022 might reflect the situation in year 2023 as the stock market is very forward looking nowadays.

All in all, I still opine that tech-related companies will deliver decent growth in 2022 and will probably continue to add if the price is right.

Of course, in current situation, I think I better adjust my target entry price lower.

One of the unfavorable situations in 2022 should be the continuous emergence of new Covid-19 strains.

Omicron has resulted in 7-fold rise in new Covid-19 cases worldwide from 500,000 cases per day in early Nov21 to more than 3.5 million cases per day now.

So far Malaysia is still under control with no significant community spread of Omicron.

However, the Omicron wave is inevitable in Malaysia. How will the local stock market react to it once it occurs?

Market is always unpredictable. When Covid-19 first emerged as a pandemic in early 2020, everyone expected a bloodbath but in the end, year 2020 turned out to be a very good year for stock market.

Year 2021 was generally regarded as a recovery year with optimism when vaccines were rolled out but in the end, it was a quite difficult year.

Year 2022 started with pessimism with the worry of US interest rate hike and the highly contagious Omicron.

The anticipated new big wave of infections might shatter the economy recovery and stock market.

As I said earlier, Mr Market is unpredictable. May be when the Omicron wave hit us, people might not worry too much about it as it hardly causes death.

We might even see the real recovery in 2022 and everyone can fly again!

http://bursadummy.blogspot.com/2022/01/preview-of-2022-tech-stocks-off-to-bad.html

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