Market watchers believe the global semiconductor sector's demand downcycle that started this year is expected to persist into 2023, much to the pain of the local technology sector.

TA Securities Holdings Bhd head of research Kaladher Govindan remained “neutral” on the semiconductor sector and expects the demand downcycle to continue for most of 2023, underpinned by expectations for slowing global economic growth with recessionary risk and softer demand from the computer, communications and consumer markets.

“Beyond near-term headwinds, we remain optimistic about the semiconductor sector’s mid-to-longer term growth prospects. We expect its next leg of growth to be fuelled by the ongoing acceleration in digitalisation and the proliferation of secular technology trends, including 5G, artificial intelligence, cloud computing, the internet of things, robotics, and vehicle electrification, among others.

“For reference, the semiconductor sector is one which is cyclical in nature, with boom-and-bust cycles typically correlating with global growth but exhibiting growth over the longer term,” Kaladher said in an annual strategy report on Dec 20.

Malacca Securities Sdn Bhd head of research Loui Low Ley Yee has a mixed view on the semiconductor and technology sector, similarly holding the belief that the demand downcycle is expected to continue in 2023.

“So in the next few quarters we are going to see some slower numbers,” he said, but noted that he foresees this cycle to not prolong for too long and expects recovery in the second half of 2023 (2H2023).

Pending this recovery, Low also warned that the sector’s earnings may take a hit in the coming two to three quarters due to the stronger local note versus the greenback, which may result in flattish earnings and could be perceived by market participants as a slowdown in the technology sector.

“So all in all, I have a mixed feeling on the semiconductor and tech sector. Those technology companies that are still making 10% to 20% earnings growth in terms of q-o-q (quarter-on-quarter), I think they are still quite alright."

It’s been a roller coaster ride for the plantation sector in 2022. Daily CPO prices have fallen more than 51% since their peak on May 2 (RM8,076.50 per tonne) to RM3,899 per tonne on Dec 23, amid a possible end to the Russia-Ukraine conflict and easing of Indonesia's palm oil export ban.

Some plantation analysts noted that 2023 is going to be a difficult year for the sector amid expectations of lower CPO prices ahead.

CGS-CIMB Research analyst Ivy Ng Lee Fang predicts that the average CPO prices will not reach the RM5,000 to RM6,000 level in 2022, and that the attractive dividend yield of plantations may not sustain in 2023.

She forecasts average CPO prices to fall to RM3,800 per tonne in 2023 from RM5,122 per tonne in 2022. Meanwhile, the average dividend yield of plantation companies tracked by CGS-CIMB was 4.8% in 2022; it is expected to fall to 3.4% in 2023.

“We advise investors to be selective in the sector and we would not recommend people to 'sell' [plantation stocks] at the current low price levels. There is a lack of catalysts to drive the stock price higher for the time being,” said Ng, who maintained a 'neutral' call for the sector.

On the other hand, TA Securities Research analyst Angeline Chin said market sentiment is still highly uncertain and slowing economies are clouding the outlook for edible oils.

“We will need to monitor the market conditions closely, especially on recessionary risks in EU and US and China’s border reopening in 2023,” said Chin in a note dated Dec 14.

Nonetheless, the analyst, who reiterated her 'neutral' call, does not expect CPO prices to see a major correction as the price will be supported by the weakening of ringgit against the US dollar, which will increase the competitiveness of Malaysia’s CPO exports.

2022 is likely a record high year for vehicle sales, thanks to the extension of sales tax exemption. But sales are likely to soften in 2023 amid rising interest rates and concerns over a global economic slowdown, which may see consumers deferring purchases of big ticket items like cars.

Still, factors such as a stronger ringgit against the US dollar and Japanese yen, an easing of commodity prices, a spill over of backlog orders, and new launches may mitigate the softening.
 
RHB Research Jim Lim Khai Xhiang, who placed the sector on 'neutral', noted that while bookings from July onwards — which are no longer eligible for sales tax exemption — have slowed, most marques are seeing gradual month-on-month improvements as consumers adapt to the adjusted prices.

“Orders for some marques are back to levels recorded earlier in the year, as new product launches are driving these orders. For example, Perodua's current 200,000 order backlog is partially driven by the new Alza, which is proving to be very popular,” he said in a report dated Dec 16.

AmInvestment Bank, which is 'overweight' on the sector, also noted that the recent strengthening of the ringgit against the US dollar bodes well for carmakers by lowering imported costs as parts and kits are sourced from overseas.

Key beneficiaries include Tan Chong Motor Holdings Bhd and UMW Holdings Bhd for exposure to greenbacks while Bermaz Auto Bhd is set to enjoy a higher ringgit against Japanese yen, the investment bank said in its Dec 14 report.

MIDF Research, in a Dec 7 report, said easing of commodity prices like steel and aluminium should help lower carmakers’ costs. “Additionally, easing global supply chain tightness should progressively lower logistics costs going forward, as seen by the easing in global freight rates and shipping costs,” it said.

The research house also said the automotive sector's valuation remains depressed, with share prices still below pre-pandemic levels, notwithstanding their significant earnings recovery in 2022.

As investors appear to still be sceptical on the sector’s outlook — particularly demand after expiry of tax holiday — it will be interesting to see if these tailwinds would help sustain TIV in 2023 when prospects of a global economic downturn loom.

Analysts do not have a consensus positive or negative outlook for the property sector in 2023, as some believe that the worst is over, while others point to further challenges.

RHB Research’s Loong Kok Wen is overweight on the sector as she believes that Bank Negara Malaysia’s interest rate hikes next year will be less aggressive than the 100bps increase logged this year, while political risks have largely dissipated after the latest special Parliamentary sitting, with Prime Minister Datuk Seri Anwar Ibrahim winning a vote of confidence in the Dewan Rakyat via a voice vote.

She said when developers released their numbers in the third quarter of 2022, it was interesting to see that the quarter's sales growth over the second quarter (2Q) was flat. In 2Q, the market picked up because of good sentiment arising from the international border reopening and the EPF special withdrawal in April.

“Considering that two of the overnight policy rate hikes were done in the third quarter, that growth is not bad,” she told The Edge.

Loong also believes that the market has fully priced in issues such as labour shortages and higher material costs. In fact, she opined that as property counters are high beta stocks, the sector may outperform the market in the event of a recovery.

However, Kenanga analyst Lum Joe Shen is more cautious, as he believes that the market has not fully priced in potential setbacks, such as higher interest rates, the possible return of the goods and services tax, as well as inflation of construction and raw material prices.

According to him, banks have also tightened loan approvals while there is also more supply of homes coming from the secondary market, especially through auction, which is hindering primary market sales.

“It’s hard for developers to pass on costs due to affordability. A lot of developers have high gearing, and with high interest rates, that means higher borrowing costs, which affects their bottomline. Earnings may come off considerably,” he cautioned.