Bursa: Tech valuation ‘compressed’ as stocks rebound on bargain hunt

KUALA LUMPUR (Aug 15): Bursa Malaysia said on Monday (August 15) that the price-to-earnings ratio (PER) of its technology index had “compressed” or fallen to 22.9 times currently, from just over 30 times in early 2022 as share prices of the tech index constituents rebounded on bargain hunting.

Analysts from Bursa’s research arm, Bursa Digital Research, wrote in a note that the index’s current PER of 22.9x values ​​the 42-stock tech gauge at around its five-year forward average PER. , but at the upper end of its pre-Covid-19 pandemic PER valuation band.

“The [Technology index] has rebounded just over 16% in the past three weeks from its July low, its lowest level since October 2020. The rebound is broad based as it saw 37 of the 42 component stocks in the index move away from their July lows.

“Since sector valuations are only a coarse filter in the selection of investment opportunities, as they do not provide information on the dynamics or macroeconomic developments of the specific sector / company, including economic cycles and monetary policies.For this, investors can take the next step by referring to the recommendations of analysts on specific companies.

“In general, the year-to-date earnings trend and target price revisions for the sector have been negative. However, analysts overall maintain a positive bias on the sector,” Bursa said.

At 5 p.m. Monday, the Technology index closed up 0.02 points or 0.03% at 67.03.

For comparison, the 30-stock KLCI FBM fell 2.18 points or 0.14% to 1,504.01.

Major constituents of the technology index include Malaysian Pacific Industries Bhd (MPI) and Genetec Technology Bhd.

MPI’s share price closed up 36 sen or 1.12% at RM32.40 to become Bursa’s second biggest gainer. Genetec rose four sen or 1.59% to RM2.56.

“Tech index volume needs to rise to bolster rebound”

From a technical point of view, Bursa said the volume of the technology index must increase to reinforce the rebound of the index.

While share prices of the components of the technology index have rebounded over the past three weeks, volume throughout the rebound phase has so far been relatively weak compared to its historical volume profile, according to Bursa.

“From a technical standpoint, if the volume profile improves in the immediate term, traders/investors might be even more convinced of the sustainability of the rebound.

“Naturally, the only question on investors’ minds would be the sustainability of the rebound. In addition to considering sector/company fundamentals, price signals/technical analysis may be able to help investors form their investment thesis on the sector.

“It should be noted that the chart pattern of the technology index is closely correlated to the Philadelphia Stock Exchange (SOX) semiconductor index, a modified capitalization-weighted index [comprising] companies involved in the design, distribution, manufacture and sale of semiconductors.

“These similar price patterns imply that most of the big tech stocks listed on Bursa are heavily exposed to the global semiconductor supply chain and industry cycles. time to analyze the current technical state of SOX,” Bursa said. said.

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