FBM KLCI rises, glovemakers hit by margin limits

By SHAZNI ONG / Pic TMR

THE move by brokerages to limit margin financing for glovemakers’ shares saw money flowing into the oil and gas (O&G) and banking thematics as the uplifting of lockdowns fuels optimism that the sectors stand to gain.

The rise in banking stocks like Public Bank Bhd, Malaysan Banking Bhd, RHB Bank Bhd, Hong Leong Bank Bhd and Hong Leong Financial Group Bhd saw the FTSE Bursa Malaysia KLCI (FBM KLCI) closed 30.8 points or 2% higher at 1,538 amid the heightened price volatility in the healthcare stocks like glovemakers.

Volumes traded remain high with 9.4 billion units traded valued at RM7 billion.

Several brokerages have begun managing margin financing for the counters on fears of a sudden correction in their stock prices.

Hartalega Holdings Bhd, Rubberex Corp Bhd and Comfort Gloves Bhd were among the major affected counters yesterday.

Badly battered oil-related stocks such as Hibiscus Petroleum Bhd, Bumi Armada Bhd and Velesto Energy Bhd were actively traded yesterday as benchmark crude oil futures contract prices hit a three-month high on reports that major producers will extend production cuts as the global economy begins its recovery from the Covid-19 pandemic.

“O&G (stocks) have seen a lot of traction as talks over curbing the supplies resurface. Healthcare stocks, especially glove-related companies, have seen some significant price action and could induce investors to book in some profits,” Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.

He said economic uncertainty remains the key factor with the global economy expected to be in recession this year as projected by the International Monetary Fund.

He remains cautious about the prospects for the O&G sector stocks as oil majors relook their capital expenditure plans, which suggests the upside potential for the stocks could be limited.

Hong Leong Investment Bank Bhd expects glove stocks to continue to experience an extended profit-taking correction amid stratospheric valuations and steeply overbought levels as more brokerages tighten their margin financing limits.

That said, AmInvestment Bank Bhd analyst Nafisah Azmi is keep- ing an ‘Overweight’ call on the rubber glove sector on the ground product prices will continue to soar for the next 12 months as lead-time stretches up to 12 months.

“The glove companies’ earnings will be further pushed by expanded margins as raw material prices remain low, selling prices continue to grow, the US dollar continues to strengthen over the ringgit and expansion plans remain intact for the glove producers,” she noted in a sector note yesterday.

AllianceDBS Research said global equity markets continued to stage a strong rally as more economies started to ease their lockdown measures as the Covid-19 pandemic spread is controlled.

“Investor focus has shifted from a credit crunch to an economic recovery beyond Covid-19 as the unprecedented liquidity injection helps to drive asset prices.

“However, escalating US-China tensions could undermine an expected economic recovery in the second half of the year, while further exacerbating the uncertainties for the global economy that is already struggling to recover to pre-pandemic levels,” it said in a strategy report yesterday.

The firm, which has revised its end-2020 FBM KLCI target to 1,425, believes this liquidity-induced equity market rally may come at the expense of long-term productivity, sustainability and financial stability that are all critical for rational asset valuation.

The firm remains positive on stocks with resilient business models, relatively unaffected by Covid-19 and high-yielding names, which are more likely to outperform in a low-interest-rate environment.

Its top picks are DiGi.Com Bhd, RHB Bank, Sunway Bhd, Time Dotcom Bhd, Astro Malaysia Holdings Bhd, Magnum Bhd and TSH Resources Bhd.