KUALA LUMPUR (Aug 15): Bursa Malaysia said on Monday (Aug 15) its Technology index's forward price-to-earnings ratio (PER) has "compressed" or fallen to 22.9 times currently from slightly above 30 times at the start of 2022 as share prices of the Technology index's constituents rebounded on bargain-hunting.

Analysts at Bursa's research arm Bursa Digital Research wrote in a note that the index's current PER of 22.9 times values the 42-stock Technology gauge at around its five-year average forward PER but at the top end of its pre-Covid-19 pandemic PER valuation band.

"The [Technology index] has rebounded slightly over 16% in the last three weeks, off its July low, its lowest level since October 2020. The rebound is broad-based as it saw 37 out of the 42 index's component stocks advancing off from their July lows.

"Granted that sector valuations are merely a gross filter in screening for investment opportunities as they do not provide insights into the sector/specific company's dynamics or macro developments, including economic cycles and monetary policies. For this, investors may take the next step by referring to analysts' recommendations on specific companies.

"In general, the YTD (year-to-date) earnings trend and target price revisions for the sector were negative. However, analysts are on an overall basis keeping a positive bias on the sector," Bursa said.

At 5pm on Monday, the Technology index closed up 0.02 point or 0.03% at 67.03.

For comparison, the 30-stock FBM KLCI fell 2.18 points or 0.14% to 1,504.01.

Notable Technology index constituents include Malaysian Pacific Industries Bhd (MPI) and Genetec Technology Bhd.

MPI's share price closed up 36 sen or 1.12% at RM32.40 to become Bursa's second-largest gainer. Genetec rose four sen or 1.59% to RM2.56.

From a technical viewpoint, Bursa said the Technology index's volume needs to pick up to add strength to the index's rebound.

While share prices of the Technology index's constituents have been rebounding over the past three weeks, volume throughout the rebound phase thus far has been relatively low vis-a-vis its historical volume profile, according to Bursa.

"From a technical perspective, should the volume profile improve over the immediate term, traders/investors may become even more convinced with the durability of the rebound.

"Naturally, the one question in investors' minds would be the sustainability of the rebound. Besides considering the sector/companies' fundamentals, price signals/technical analysis may be able to assist investors in forming their investment thesis on the sector.

"It is worth noting that Technology index's chart pattern is closely correlated to the Philadelphia Stock Exchange Semiconductor Index (SOX), a modified capitalisation-weighted index [comprising] companies that are involved in the design, distribution, manufacturing, and sale of semiconductors.

"These similar price patterns infer that most of the big technology stocks listed on Bursa are heavily exposed to the global semiconductors' supply chain and the industry's cycles. Hence, it is worth investing some time to analyse the current technical state of SOX," Bursa said.