Tech stocks rally hits speed bump amid profit-taking

Tech stocks' rally hits speed bump amid profit-taking
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KUALA LUMPUR (Jan 19): The tech stock rally yesterday, fuelled by anticipation of higher demand for tech products amid fresh global lockdowns that saw certain counters hit limit-up, faltered today as investors took their feet off the pedal to take in profit, according to market observers.

The decline was reflected in the Bursa Malaysia Technology index, which came off its record high of 78.06 points yesterday to close 0.73 lower at 77.49.

Year-to-date, the technology gauge has climbed 11.15% or 7.77 points from 69.72 on Dec 31, 2020 — outperforming the FBM KLCI, which fell 1.56% or 25.33 points to 1,601.88 from 1,627.21.

When contacted, both Malacca Securities head of research Loui Low and Rakuten Trade Research vice president Vincent Lau said most technology-linked stocks hit a speed bump today because investors were taking profit following the strong gains seen.

"I do not see any negative news on technology counters, basically it was just investors taking profit, especially since technology counters went up too much," said Loui.

To Lau, the share price retracing was a "healthy correction", following the limit-ups seen yesterday.

Both Loui and Lau also think tech counters are now expensive, though they noted that these stocks are fundamentally strong with good earnings visibility, underpinned by growing demand for 5G technology and electronic products.

"Earnings visibility is rising as technology companies received good orders on increasing digitisation and chip shortage due to pandemic," Lau noted. He also said demand for electronics locally will be supported by the one-year extension on the special tax relief of up to RM2,500 for the purchases of mobile phones, computers and tablets — which initially expired on Dec 31, 2020 — under the newly announced PERMAI or Perlindungan Ekonomi Dan Rakyat Malaysia stimulus package.

Loui, meanwhile, expects Bursa's tech companies to deliver good earnings in the upcoming two quarters on improving orders from China. "Most of them (tech stocks on Bursa) are expensive but they can still grow. It is a long-term story for tech counters as the certainty of technology innovation is much higher," Loui said, adding this is why investors are willing to continue to pour money into tech counters despite their stiff valuations.

According to Bloomberg, Bursa's 39-stock Technology index saw 21 decliners and 11 gainers today, while seven were unchanged counters. Unisem (M) Bhd was the largest index mover in percentage terms, which dragged the index by 0.33 point, followed by D&O Green Technologies Bhd (0.21 point) and Frontken Corp Bhd (0.14 point).

KESM Industries Bhd, meanwhile, was the top decliner by value on Bursa Malaysia, after falling 66 sen or 3.77% to RM16.84. Unisem, whose share price fell 38 sen or 4.85% to RM7.45, was the third biggest decliner.

As for tech stocks that continued to climb today after yesterday's rally, they included Malaysian Pacific Industries Bhd or MPI (up six sen to RM30.26), UWC Bhd (up 26 sen to RM11.86), Mi Technovation Bhd (up 27 sen to RM4.83) and Mesiniaga Bhd (up 11 sen to RM1.62).

Tan Choe Choe