PETALING JAYA: After underperforming against others, the technology sector is expected to attract investor interest in 2025 on improved outlook and more compelling valuations.
Vincent Lau, head of equity sales at Rakuten Trade said the sector is ripe for a recovery underpinned by a softer ringgit, the expansion of artificial intelligence (AI) usage worldwide and the building of more data centres in the country.
“That, together with government initiatives, will have a spillover effect on the tech sector for services and equipment which will aid a recovery in the stocks,” Lau said.
The stronger ringgit had hit earnings of many local tech companies in the third quarter and its softening against the US dollar would help many companies post improved export earnings.
He said he wasn’t particularly worried about a Trump presidency from Jan 20 onwards, believing the tech sector locally could be a net gainer from realignment of supply chains and the China+1 strategy.
China+1 is the strategy to avoid investing only in China and diversify business into other countries, or to channel investments into manufacturing in other promising developing economies such as India, Thailand, Turkey or Vietnam.
Phillip Capital Research said it foresees stronger earnings momentum in 2025 for the bulk of the local tech companies within the electronics manufacturing services (EMS) space, with sector earnings forecast to grow by 69.5% year-on-year as the semiconductor cycle turns.
The research house said it prefers industrial players in the EMS sector over consumer electronics, with the former better positioned to ride the AI boom and being less susceptible to any slowdown in the global economy.
“Investors are positioning for the next semiconductor cycle, with earnings delivery being the key catalyst for further share price reratings.
“The focus is expected to remain on the AI supply chain. We maintain an ‘overweight’ stance, favouring long-term secular trends in data centres, automotive and solar, with a preference for front-end exposures,” the research house said in a recent strategy report.
From a technical standpoint, a technical analyst with a local research house said the tech index appears to have found its bottom at about the 58-point level over September to late November and had started to trend up since early December.
The index hit a year high of 81 points in early June before a selloff of tech stocks globally in July spread to the local exchange, which was made worse by poor second and third quarter numbers by companies in the sector.
Stock wise, shrewd investors now appear to be betting on local companies that have an AI connection where bulk of capital expenditure by titans like Microsoft and Amazon is being spent.
Unsurprisingly, names like Frontken Corp Bhd
and Nationgate Holdings Bhd have become sector favourites due to the AI and data centre-related themes, with Frontken for its services supplied to Taiwan Semiconductor Manufacturing Co Ltd, which is a leading AI chip maker, and Nationgate as a potential gainer from the new data centres for AI servers.
“The share prices of these companies are at or near historic highs again while the share price of outsourced semiconductor assembly and test service providers like Inari Amertron Bhd, Malaysian Pacific Industries Bhd, Unisem (M) Bhd, Globetronics Technology Bhd and KESM Industries Bhd have made very small gains as investors want to see an upturn in the conventional semiconductor replenishment cycle before committing to them,” said the analyst.
With some economists warning of a weaker global economy in 2025, the strength of the semiconductor upcycle is another factor to consider, he added.
