KUALA LUMPUR (Jan 16): Heavy selloff led by foreign funds sent Malaysian construction stocks downhill on Thursday as uncertainties loom in the global financial markets, while investors are getting more bearish on the interest rate trend.
This compounds the cautious sentiment caused by concerns over data centres being built as the US further tightens restrictions on the exports of advanced chips.
At Thursday midday break, Sunway Construction Group Bhd (KL:SUNCON) plunged over 10%, its biggest drop since the Covid pandemic nearly four years ago. Gamuda Bhd (KL:GAMUDA) and IJM Corporation Bhd (KL:IJM), the top builders by market capitalisation, each fell 5%.
At market close, both Sunway Construction and Gamuda recouped some of their losses, but they are still down 8.21% and 4.27%, respectively. Meanwhile, IJM Corp saw its losses widen to 5.9%.
The Bursa Malaysia Construction Index, which tracks 50 stocks in the sector, was down to its lowest in more than three months.
The high volume of sell orders suggests that the decline was likely driven by foreign fund managers locking in gains from a recent strong rally in the sector, dealers and analysts observed. Some, however, are urging investors to buy into the selldown.
“Long-term investors should turn a short-term sentiment-driven correction into bargain hunting opportunity,” said Danny Wong, who manages assets worth over RM5 billion as the chief executive officer of Areca Capital.
Investors, however, should be selective, sticking to fundamentally strong construction firms backed by strong order books which would be less affected by short-term market volatility, he said.
Tightening restrictions
On Wednesday, the US has put 25 Chinese firms and two Singapore-based companies on a restricted trade list, including Sophgo Technologies Ltd, which the Biden administration claims are acting at the behest of Beijing to further their goals of indigenous advanced chip production.
The overall goal, according to the US Department of Commerce’s Bureau of Industry and Security, is to prevent the diversion of certain high-end chips critical for military advantage to China.
Malaysian construction stocks soared last year as investors scrambled for exposure to the data centres mushrooming around the country amid the euphoria over artificial intelligence (AI).
Foreign investors have been the largest buyers of shares of Malaysian construction firms from the beginning of the year up to Jan 9, according to CIMB Securities, making the stocks highly vulnerable to sudden reversals.
Fears overblown
The curbs on AI chips should have “little to no impact” on the sector as most of the operators have ongoing developments or those that are planning to build data centres are US-headquartered, said MIDF Amanah Investment Bank analyst Royce Tan, who covers the construction sector.
“The strong pullback we saw in recent days may be an overblown fear,” he said. “Prices at current levels present an opportune moment to buy at attractive valuations.”
For Malacca Securities' head of research Loui Low, valuations of construction stocks are likely under pressure from further uncertainties ahead.
Even after taking office, President-elect Donald Trump “will not take any action to reverse the current restrictions, so there will be no positive catalyst”, Low said. While the stocks in the sector are still on ‘buy’ calls, investors may be forced to lower their expectations, he added.