KUALA LUMPUR (Oct 2): Malaysian technology stocks outperformed on Thursday amid a broad rally in Asia amid rising odds of US interest rate cut.

A US government shutdown is reinforcing expectations for the Federal Reserve to ease monetary policy, weakening the greenback and sending investors scrambling for higher returns in Asia and other markets getting a boost in valuations.

Bursa Malaysia Technology Index, which tracks 49 stocks in the sector, rose more than 5%. Semiconductor firms Inari Amertron Bhd (KL:INARI) surged 11%, while Malaysian Pacific Industries Bhd (KL:MPI) was up nearly 10%. Software firm Censof Holdings Bhd (KL:CENSOF) gained 16%.

When technology stocks rally, the catalysts are usually stronger-than-expected earnings, sector-specific innovations, and shifts in monetary policy, said Mohd Sedek Jantan, an investment strategist at financial and wealth advisory firm IPPFA Sdn Bhd.

“In this instance, the rally was underpinned by prospects of looser US monetary policy,” he added.

Technology stocks also tend to benefit from lower US interest rates that make capital cheaper for companies with heavy capital expenditure. A week-long holiday in China also contributed to the inflow into Malaysia and other Asian markets.

“Hot money is coming into the market,” said an institutional dealer at a local investment bank who declined to be identified. “If you’re a foreign fund manager looking to park your money, tech stocks is the most obvious place in the short term if you buy the Fed rate cut thesis."

The rally also mirrored previous day’s gains in the US, partly driven by the “AI frenzy trades” that continue to dominate sentiment, said an analyst from a bank-backed research firm.

However, volatility will return as earnings season kicks off, the analyst said, adding investors will be very selective and focus on companies with exposure to artificial intelligence.