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Tech selldown a temporary blip as demand grows

KUALA LUMPUR: The pullback in global technology stocks could be a temporary healthy retracement given that the sector's fundamentals remain intact, says MIDF Research.

The research firm opined in a report that investors were drawn away from technology-heavy growth shares and into value-oriented shares following the more hawkish stance of the US Federal Reserve and a possible balance sheet reduction.

While the Nasdaq index was seen falling as much as 19% from its all-time high in November, MIDF expects a rebound in growth stocks such as Apple, Microsoft, Tesla and Nvidia once the selling subsides.

"These big cap companies are cash rich and therefore we think they are able to roll-over their debt at prime rates unlike the smaller and leverage companies which need to grow rapidly and struggle more to justify their valuations.

"Overall, we opine that tech swept up in this rotation from technology-heavy growth shares to value-oriented shares is just temporary blip before return to normalcy in mid and longer terms," said MIDF.

Meanwhile, MIDF maintains a positive outlook on the Bursa Malaysia Technology Index as external trade continues to benefit from the post-pandemic recovery of the global economy.

The research firm said the recent sell down in local tech stocks was an overreaction over the higher interest rate environment, which is generally not favourable for growth stocks such as tech.

It added that there are no expectations for lower global semiconductor sales after two years of robust demand that was sped up by the pandemic.

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

"Regarding this, we are expecting that demand will 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 electric vehicles, and Internet of Things devices," it said.

MIDF maintained "positive" on the local tech sector with the arrival of 5G technology, increasing smartphone shipments and emergence of digital solutiosn in business and growing electric vehicle market.

The brokerage's top pick is Inari Amertron Bhd, given its exposure to growing RF contents in 5G smartphone usage and adoption.

It also likes My EG Services Bhd as it rides the emergence of digital solutions in businesses such as the automated driving test and training system, Covid-19 breathalysers and cross-selling of travel insurance.

https://www.thestar.com.my/business/business-news/2022/02/03/tech-selldown-a-temporary-blip-as-demand-grows

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