KUALA LUMPUR (Feb 3): After the recent correction of the tech-heavy Nasdaq, the pullback in the global tech sector is seen as a healthy retracement as the sector's fundamentals remain intact. 

According to MIDF Research, investors have turned away from technology-heavy growth shares to value-oriented shares — which are more favorable in a high-interest rate environment — following the more hawkish stance of the US Federal Reserve and possible balance sheet reduction. 

“Nonetheless, we think that once the selling fervour recedes, growth stocks such as Apple, Microsoft, Tesla and Nvidia will quickly rebound. 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 leveraged 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 [a] temporary blip before return to normalcy in mid and longer terms,” it said in a note on Thursday (Feb 3). 

It said Malaysia’s external trade will continue to benefit from the post-Covid-19 pandemic recovery of the global economy. 

Therefore, MIDF believes that the recent sell-off of the country's tech stocks was merely an overreaction to fears of a higher-interest rate environment, which is generally not favourable for growth stocks such as tech stocks, rather than expectations of lower global semiconductor sales after two years of robust demand accelerated by the pandemic.

“We opine that the fortunes of [the] Malaysian tech sector are highly correlated with global demand for semiconductors. Regarding this, we expect demand to stay solid in the next couple of years given the proliferation of computer chips in our daily lives in personal devices, such as smartphones, laptops and wearables to electric vehicles and Internet of things devices,” it said. 

The research house maintained its "positive" call on the technology sector.  It said the arrival of 5G technology, increasing smartphone shipment, emergence of digital solutions in business and a growing electric vehicle market will continue to propel the positive outlook for semiconductors players throughout 2022. 

“Our top pick for [the] technology sector is Inari Amertron Bhd (buy; target price [TP]: RM4.55) given the group’s exposure to growing radio frequency (RF) contents in 5G smartphone usage and adoption. 

"We also like MyEG Services Bhd ("buy"; TP: RM1.27) as it continues placing aggressive moves to ride the emergence of the digital solution wave in businesses, such as the automated driving test and training system (e-testing), Covid-19 breathalysers and cross-selling of travel insurance,” MIDF added.