Analysis: Will Jan’s tech selldown be a barometer for 2022?
KUCHING: The team at MIDF Amanah Investment Bank Bhd (MIDF Research) suspects that markets’ performances in January acts as a precursor to their performances for the rest of the year, based on the ‘January barometer’.
The January barometer was first mentioned by Yale Hirsch in 1972. It is a market theory that is considered a forwardlooking indicator of an index’s annualised returns based on the momentum demonstrated in the respective month of January – particularly in the US.
If the month of January yields positive momentum, the remainder of the year will rise as well and vice versa.
“Looking into the recent correction in tech-heavy Nasdaq which fell as much as 19 per cent from its all-time high in November, we opine that the pullback is a healthy retracement given that the fundamental stays intact,” commented MIDF Research on this.
“The more hawkish stance of Fed’s December minutes on rate hikes and possible balance sheet reduction is the primary reason that pulled investors away from technology-heavy growth shares to value-oriented shares which obviously more favorable in a high interest rate environment.
“Nonetheless, we think that once the selling fervor recedes, growth stocks such as Apple, Microsoft, Tesla, 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 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.”
MIDF Research believed that the KL Technology Index (KLTEC) will not follow the same path.
“Malaysia’s external trade will continue to benefit from the post-pandemic recovery of the global economy. Our economics team project that exports will grow by 4.5 per cent this year given the encouraging outlook of external demand for electrical and electronic (E&E) and commodity products export,” it said.
“Malaysia’s E&E sector contributed 39.3 per cent or RM386.29 billion to Malaysia’s total exports in 2020 and Malaysia accounted for almost seven per cent of total global semiconductor trade and 13 per cent of global capacity in terms of back-end assembly tests and packaging.
“With this, we believe the recent sell down in our tech stocks was just an overreaction fear over higher interest rate environment which generally not favorable for growth stock such as tech and not due to expectation of lower global semiconductor sales after two years of robust demands that was sped up by the pandemic.”
MIDF Research also opined that the fortunes of Malaysian tech sector are highly correlated to global demand for semiconductors.
It expects 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.
“We maintain our positive call on Malaysia’s technology sector as the importance of semiconductors and the companies that produce them cannot be understated especially as technology is going to play a much significant role than ever before.
“The arrival of 5G technology, increasing smartphone shipment, emergence of digital solution in business and growing electric vehicle market will continue to propel the positive outlook of semiconductors players throughout 2022.”