Saturday, 15 January 2022

Preview of 2022: Tech Stocks Off To A Bad Start


Which sector in Bursa Malaysia will excel in year 2022? 

I think many investors opine that technology sector will continue to flourish in 2022 after doing exceptionally well in 2020 & 2021.

The reason is simple: 5G, electric vehicles, autonomous vehicles, Internet of Things, IR 4.0, smart devices, metaverse etc. 

These things are the future and it seems like they are still in their infancy stage. All of them need a lot more sophisticated chip.

Thus, semiconductor's demand is high in the foreseeable future.

However, as we step into the first two weeks of 2022, the stock prices of technology stocks in Bursa Malaysia drop like nobody's business.

Most of them suffers 15-25% slash in their share prices in the past one week alone.

Is this a golden opportunity to grab their shares or is it just the beginning of a prolonged downtrend?

If you previously were optimistic about tech sector in 2022, will you change your mind only after 2 weeks into 2022 to think that tech companies will not do well in 2022?

To me, most tech companies will have growth in sales and profit in 2022. What might change is their valuation.

I can't predict how the market will value them in 2022. I don't know whether their PE multiples will drop to below 20x as growth will slow down, or continue to be valued at more than 40x as demand is high.

If you think current drop is overdone and it will surely rebound strongly to achieve new height, then take a look at the Bursa technology index chart below.

From this historical chart, tech sector started its slow growth recently from 2013 to 2017, and then became stagnant in 2018 & 2019.

Covid-19 pandemic has propelled the index up steeply by more than 200% in 2020 and 2021.

If you think current correction in early 2022 is severe enough, it's actually just a 15% drop from its peak.

Does it mean that it still has more room to decline? The possibility is there but no one can predict the market.

It sounds like I'm pessimistic about tech sector in 2022. Actually I'm not.

I have a plan to add some tech stocks into my portfolio in 2022, ONLY IF their share prices fall to my desired level.

Apparently, all their share prices have fallen below that mark and I have made my move to buy one of them.

Apparently, its share price continues to drop after I have bought and it's a feeling of deja vu like my previous investment in Gtronic.

I held only 25% of cash heading into year 2022. I have to utilize it more carefully.

Other than technology sector, which other business sector can deliver profit growth in 2022?

Like most other countries in the world, Malaysia is not spared from inflation and there is a high possibility of interest rate hike this year. 

Thus, finance sector might have a chance to grow its profit in 2022.

Plantation sector definitely has a superb year in 2021 as the CPO price rose steadily from RM3,000/T at the beginning of the year to RM5,000/T at the end of 2021.

Last week CPO price breaks new high again above RM5,150/T so plantation companies have a good chance to achieve better profit in 2022 compared to 2021 if the CPO price does not crash below RM3,000/T.

Consumer, travel & leisure sectors are logically the beneficiaries of recovery from pandemic, as long as new variants of viruses do not wreak havoc again.

Airasia inevitably fell into PN17 status and its share price almost limit down. Domestic travel is the key to its revival in 2022 as I don't think non-essential international travel will do very well.

For GENM, its overseas operation recovered well in 2021 and local operation should follow in 2022.

Recent opening of its outdoor SkyWorlds Theme Park in Dec21 will bring in more sales but initial start up loss is expected due to high depreciation charge. 

For steel sector, I feel that even though they can still enjoy a good year in 2022, they will not surpass their profits in 2021 especially for the downstream players.

Brent oil price is now testing its 7-year high of USD86/barrel but there seems to be lack of interest in Oil & Gas stocks.

If the crude oil price can stay above USD70 in 2022, then upstream and midstream O&G companies should have a great year.

There is lack of mega construction projects since 2020. Thus the construction sector which was disrupted by multiple MCOs, looks rather dull in the past 2 years. 

Even though smaller construction projects still have to be given out to revive the economy, it doesn't look like construction companies will grow their profits significantly in this year to me.

Similarly, I feel like property sector in general might not do very well in 2022.

For logistic sector, I don't see any catalyst for it and I think it's neutral.

Industrial products such as packaging, EMS, furniture etc should do OK in 2022 unless there is sudden headwind such as significant depreciation of USD against MYR which seems very unlikely.

Lastly, medical gloves companies are confirmed to have lower profit in 2022 compared to 2021.

Everything I share here is just my own shallow view and of course it will not be accurate.

When I think that property sector might not do well, it doesn't mean that all property companies will not achieve profit growth. 

Furthermore, it's just about the growth in profit in CY2022 compared to CY2021, not the performance of their share price in 2022.

Tech companies will probably grow their profits further in CY2022 but their share price might drop in 2022 due to adjustment in valuation.

The profit of gloves companies will drop in CY2022 but their share price might increase due to oversold situation in 2021.

Share price in year 2022 might reflect the situation in year 2023 as the stock market is very forward looking nowadays.

All in all, I still opine that tech-related companies will deliver decent growth in 2022 and will probably continue to add if the price is right.

Of course, in current situation, I think I better adjust my target entry price lower.

One of the unfavorable situations in 2022 should be the continuous emergence of new Covid-19 strains.

Omicron has resulted in 7-fold rise in new Covid-19 cases worldwide from 500,000 cases per day in early Nov21 to more than 3.5 million cases per day now.

So far Malaysia is still under control with no significant community spread of Omicron.

However, the Omicron wave is inevitable in Malaysia. How will the local stock market react to it once it occurs?

Market is always unpredictable. When Covid-19 first emerged as a pandemic in early 2020, everyone expected a bloodbath but in the end, year 2020 turned out to be a very good year for stock market.

Year 2021 was generally regarded as a recovery year with optimism when vaccines were rolled out but in the end, it was a quite difficult year.

Year 2022 started with pessimism with the worry of US interest rate hike and the highly contagious Omicron.

The anticipated new big wave of infections might shatter the economy recovery and stock market.

As I said earlier, Mr Market is unpredictable. May be when the Omicron wave hit us, people might not worry too much about it as it hardly causes death.

We might even see the real recovery in 2022 and everyone can fly again! 


  1. "It sounds like I'm pessimistic about tech sector in 2022. Actually I'm not.
    I have a plan to add some tech stocks into my portfolio in 2022, ONLY IF their share prices fall to my desired level."

    I am optimistic on tech stocks. I think there are two main trends which will see multiple-years growth; one is surely EV, and another is wafer fab related supply chain. These two trends will not be disrupted regardless interest rate hike or pandemic or other factors.
    I have been collecting tech stocks "slowly" in past few days. The rate hike is most likely to happen in Mar, thus the down trend may last till Mar when the rate hike is realized.

  2. Why I think EV and wafer fab supply chain are going to be multi-years mega trend?
    Everyone knows Electric Vehicle is booming and it is still at the initial stage, so I need not elaborate further.
    As for wafer fab, there are a total of 29 fabs (China x8, Taiwan x8, Americas x6, SEA x4, and others x3) under construction and will be ready in next several months to 2 years; analyst disclosed that their total equipment spending will surpass USD140 billion over the next few years. The most anticipated new fab is TSMC. The new wafer fabs are to tackle the current chip shortage issue and cater for future new tech demand.

  3. I gather the related Bursa stocks which are most related to the two mega tech trends above.
    A. Electric Vehicle(EV)
    i) Greatec and Genetec - automation for EV and battery assembly
    ii) D&O - LEDs, especially smart RGB LED, for EV. The LED contents per EV is much higher than gasoline automotive. A analyst claimed it is 6-fold higher.
    iii) MPI and Unisem - both manufacture electronic components for gasoline automotive. I suppose they can also produce components for EV. MPI ventures into producing SiC and GaN components, which aim for EV industry.
    JHM, KESM and Pestech are also the beneficiaries but I think their positive impacts are not as significant.

    B. Wafer fab supply chain
    i) Frontkn - it provides precision cleaning and surface treatment to wafer fab. TSMC Taiwan is it's major customer. TSMC new wafer fab in KaoShiung should be ready within 2022; Frontkn has already acquired a new plant in KaoShiung to service TSMC.
    ii) UWC - contract manufacturer for front-end equipments. It will benefit from new wafer fabs' capex.

    The above are the tech stocks I am/will collecting/collect.
    If there is any other major beneficiaries that I miss out, pls let me know.

    1. Thanks for your valuable input on tech segment. I think Penta is also related to SiC and GaN stuff. Those companies you listed here are definitely great companies may be except Genetec which still hasn't shown its consistency. Thus their PE valuation are very high last year and are still relatively high even after recent fall. MPI & Unisem are at a more attractive level to me.

  4. As for steel stocks, I also think steel price cannot surpass the level achieved in May'21. As such, steel stocks' profit margin in 2022 can't match with 2021's. Having said that, the current steel price, although has trended down since May'21, is still at elevated level (>CNY4,500 per tonne) and is comparable with previous high level in 2017/18.
    The positives are China has reduced and controlled its steel output and this is going to be long-term. There will be no dumping of cheap long steel/flat steel from China which was the major problem for steel companies worldwide. AnnJoo has been exporting its long steels to China instead. The anti-dumping duties are exercised for flat steels against other countries to protect local players. All in, I think local steel players are in much better business environment now. I believe most steel companies can make profit in year 2022.

    The potential booster for Bursa steel stocks are :
    i) China's property market recovery if and when the debt issue is settled. This will lift up China's steel price.
    ii) Our local construction industry recovers when the pandemic subdues and more projects are rewarded.

    The current price of Bursa's steel stocks are mostly still at low level. As such, I am cautiously optimistic on steel stocks for 2022. But, since this industry is so cyclical and there is no mega trend exists, steel stocks are not to be held long-term like tech stocks.

    1. I'm thinking like this, the market gave steel stocks a pathetic PE valuation in their best year in 2021, will it give them a higher valuation when earning drops in 2022? Anyway the earning drop is just my prediction, which is contrary to the views of some experienced investors. I think previous high margin was due to low cost inventories selling at high market price. Now it might be higher price inventories selling at lower price, and margin might be normalized if there is not much fluctuation in steel price. Growth will depend more on demand. This is an oversimplistic assumption but generally I think steel stocks can still deliver profits in 2022. Just my 2 cents.

  5. I initially forecasted the interest rate hike will be in ~Jun'22, and have planned my buy/sell timing accordingly. I wanted to sell and reduce my stock holdings ~3months before the hike to avoid sell-down resulted from fear, and buyback later when the hike is realized.
    However, we know now the hike is very likely sooner than expected, and the sell-down started in Jan'22...I have to adjust my plan accordingly then. Well, as we know, stock market is so unpredictable.

    1. Actually I'm more worried about the possibility Omicron wave in Malaysia. However, I guess the stock market might not over-react to it if it really occurs.

    2. rumored 17Feb is a planned soft-lockdown in malaysia?

    3. No idea about any soft lockdown.. and not sure how soft is it