Malaysian Tech Sector Downgraded on Rising Risks
Risks and Uncertainties Mount
Increasing risks from the disruption caused by China’s artificial intelligence (AI) upstart DeepSeek to the deterioration of US-China trade ties have prompted Kenanga Research to downgrade Malaysia’s technology sector to “neutral”.
The research house pointed to the company’s emergence, escalating US-China trade tensions, and potential US policy reviews as risks hanging over the tech sector. These uncertainties have contributed to a substantial decline in the prices of many technology stocks on Bursa Malaysia since the start of the year.
Tech Sector Under Pressure
The bourse’s technology index has fallen about 8% year to date after the US tightened restrictions on advanced AI chips and the launch of DeepSeek, with its lower-cost AI models. Kenanga noted that the recent selldown in technology stocks was largely driven by investors moderating their expectations, rather than earnings weakness, pointing to minimal forward earnings revisions.
Impact on Semiconductor Sector
The emergence of DeepSeek challenges US semiconductor export controls, as China continues advancing AI despite restrictions, potentially triggering US policymakers to reassess policies and tariffs, heightening supply chain concerns. It has also introduced uncertainties into the semiconductor sector, particularly regarding Nvidia’s dominance, US chip restrictions, and AI investment strategies despite big tech’s high capex commitment.
Kenanga’s Preferred Picks
Kenanga highlighted Inari Amertron Bhd, PIE Industrial Bhd, and Kelington Group Bhd (KGB) as its preferred picks, citing their strong earnings visibility and strategic positioning in the ongoing AI-driven growth trend. It has a 52-week target price of RM3.27 for Inari, RM6.28 for PIE and RM6.16 for KGB. Inari surged 11.9% today to RM2.72 while PIE and KGB closed at RM4.86 and RM3.44 respectively.
Conclusion
In conclusion, the Malaysian technology sector has been downgraded to “neutral” due to rising risks and uncertainties. While the ongoing semiconductor upcycle is expected to continue, growth could slow as industry players reassess their business models. Investors should remain cautious and monitor the developments in the tech sector.
FAQs
* What triggered the downgrade of Malaysia’s technology sector?
+ The emergence of China’s artificial intelligence upstart DeepSeek, escalating US-China trade tensions, and potential US policy reviews.
* What are the key risks facing the tech sector?
+ The challenges posed by DeepSeek, escalating US-China trade tensions, and potential US policy reviews.
* Which companies did Kenanga recommend as preferred picks?
+ Inari Amertron Bhd, PIE Industrial Bhd, and Kelington Group Bhd (KGB).
* What are the target prices for these companies?
+ RM3.27 for Inari, RM6.28 for PIE, and RM6.16 for KGB.