KUALA LUMPUR (Aug 5): Technology and semiconductor-related stocks on Bursa Malaysia extended their selloff on Monday afternoon, after their sharp fall in the morning amid the global stock rout. The technology sub-sector was the second biggest decliner, with the index, which tracks 48 stocks, dropping 9.1% or 6.5 points to close at 64.18.

It has now broken all its key support levels — the 20-day, 50-day as well as 200-day moving averages — closely followed by most investors. The index is now back at its end-April level.

This comes as global risk-offs continued with Japan's Nikkei index dropping by a whopping 12.4%, triggering circuit breaks while semiconductor-heavy South Korea's Kospi and Taiwan's Taiex indices recording declines of 8.8% and 8.4% respectively. The Nasdaq futures is down about 4% at the time of writing.

At Monday’s close, the tech decliner with the largest turnover was MyEG Services Bhd (KL:MYEG), closing down 14.5 sen or 14.9% at 82.5 sen. The stock saw a total turnover of RM173.16 million, some 1.3 times higher than its three-month average.

The stock is now back to April levels and has fallen below its 200-day moving average line — an indication of longer-term money leaving. Nevertheless, the counter is still up 1.2% year-to-date (YTD). Its market capitalisation now stands at RM6.24 billion.

The next top-traded tech stock was Inari Amertron (KL:INARI), which finished down 31 sen or 8.7% at RM3.27 to be back at its mid-May level. The counter saw a trading value of RM140.66 million, about 1.8 times higher than its three-month average. YTD it is still up 8.6%, with a market capitalisation of RM12.37 billion.

This was followed by Frontken Corp Bhd (KL:FRONTKN), which ended the day down 38 sen or 9.3% at RM3.71, on a turnover of RM60.15 million (2.3 times higher than its three-month average). The stock has also fallen below its 200-day moving average support. YTD it is up 14.5% with a market capitalisation of RM5.89 billion.

Two other high impact decliners were Malaysian Pacific Industries (KL:MPI) which fell RM2.10 or 6% to RM32.90, and Nationgate Holdings Bhd (KL:NATGATE) which tumbled 26 sen or 13.1% to RM1.72. Both stock saw a three to four fold rise in daily turnover. Nevertheless, YTD the two counters are still up 16.7% and 13.9%, respectively. Their market capitalisation is RM6.91 billion and RM3.56 billion, respectively.

All these five stocks extended their fall after the midday break on continued selling that led to the higher than usual turnover.

Besides the high impact decliners, other tech stocks that broke their 200-day moving average support line — an indication of unfavourable price trend — included Cape EMS Bhd (KL:CEB) (down 46.7% YTD), Pentamaster Corp Bhd (KL:PENTA)(down 13% YTD), Dagang NeXchange Bhd (KL:DNEX) (down 8.8% YTD), CTOS Digital Bhd (KL:CTOS) (down 7.1% YTD, Unisem Bhd (KL:UNISEM) (down 7.1% YTD), and Greatech Technology Bhd (KL:GREATEC) (down 4% YTD).

Meanwhile, a BIMB Securities Research analyst said the sell-off in the KLTEC Index can be attributed positive correlation with global tech indices, especially Nasdaq.

“Firstly, the KLTEC index is positively correlated with global tech indices, particularly the Nasdaq, and is therefore mirroring the recent decline in global tech stocks. Since its last peak on July 10, the Nasdaq has lost around 10%, prompting investors to monetise their profits after a strong rally in the stocks,” said the analyst.

“We believe that the recent quarterly results announcements have also provided reasons for profit-taking, as share prices failed to rise further, despite companies reporting better and improving performance, due to the high expectations placed on them.

“Aside from that, with heightened recession fears, increasing geopolitical uncertainties, and US election approaching, investors are shying away from riskier assets, especially growth stocks in the tech sector, to mitigate potential volatility and risks associated with these uncertainties,”she added.

Well-positioned to mitigate currency fluctuation

The BIMB Securities Research analyst said most of Malaysian tech firms have revenue streams and expenses that are both denominated in US dollars (USD), which can help mitigate the impact of currency fluctuations.

“Therefore, while a stronger MYR [ringgit] might pose some challenges, the overall effect on Malaysian tech companies is expected to be manageable, due to these hedging practices,” it said.

The research house projects the USD-MYR exchange rate to be around 4.45 by year-end, and 4.33 by end-2025, which represents a 2-3% y-o-y increase.

“We believe Malaysian tech players are well-positioned to handle the currency appreciation through natural hedging strategies,” the analyst added.

She believes Malaysia stands to benefit from the ongoing US-China tech war at this juncture, particularly through the adoption of the China +1 and Taiwan +1 strategies, with global manufacturers seeking to diversify their supply chains.

“This shift could direct to increased investments and business for Malaysian tech firms. Yet, we are cautious and continue to monitor the situation closely, as escalating tensions could also lead to substantial supply chain disruptions. This concern arises because we believe Asia still plays a major role at both ends, demand and supply, within the semiconductor industry,” she added.

The analyst said the bloating costs and delays in execution associated with shifting market share from Asia to the US and Europe will be a major concern.

“While we do not anticipate the situation to be as severe as it was in 2018, given that companies have implemented appropriate measures based on lessons learned from that period, any major conflict could still pose risks to Malaysia’s tech sector," she added.