Sputnik, talks on margin trading curbs wipe RM34b of glove stocks’ value

Most of the gloves and healthcare stocks have come down as market players could be pricing in the vaccine discovery factor


GLOVEMAKERS on Bursa Malaysia continued to suffer their “Sputnik moment” with some RM34 billion wiped out from the four largest producers by market value since last Tuesday after Russia announced it had a Covid-19 vaccine.

Malacca Securities Sdn Bhd head of research Loui Low said most of the gloves and healthcare stocks have come down as market players could be pricing in the vaccine discovery factor that translated into potential rerating downwards of the price-earnings given to gloves stocks moving forward.

“Nevertheless, the vaccine may not be in mass production until mid-2021 and the Covid-19 virus is still mutating, which means the vaccine may not be effective for the current strain of the Covid-19 virus.

“Hence the fall in prices may be a good time to accumulate as the peak in earnings for gloves companies is yet to be seen,” he told The Malaysian Reserve (TMR) yesterday.

The “Big Four” — comprising Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd — were the top losers yesterday.

The selling pressure hit Top Glove the hardest, as the stock dropped 5.88% or RM1.40 lower to RM22.42, followed by Supermax which fell 6.81% or RM1.22 to RM16.70. Kossan slid 5% or 72 sen to RM13.68, while Hartalega dipped 2.87% or 46 sen to RM15.56.

The selling pressure dragged the benchmark FTSE Bursa Malaysia KLCI lower by 3.85 points or 0.25% to 1,560.74 points at close yesterday as trading volumes eased further to 8.8 billion securities.

The speculations of a possible windfall tax on glovemakers and unconfirmed moves by a stockbroking firm to stop offering contra trade facilities on glove counters spooked investors and added to the selling pressure on the rubber glovemakers.

“For the contra trade ban, most of the brokers will have the margin capping and risk management done beforehand, thus we believe this might be a non-event after all.

“What is worrying the market players could be the speculation of windfall tax (but no one would know the timing of it). Should it be implemented, it will impact the share price in a negative way,” Low added.

Low noted that the share prices of glove stocks are likely to be volatile driven by newsflow in the near term.

“From a technical point of view, we are seeing oversold positions for most of the glove-related stocks and some second and third liner of the healthcare-related stocks, for market players to trade for a rebound,” he said.

JF Apex Securities Bhd research analyst How Chi Hoong believes the premium valuation on glovemakers is tapering off on the development related to vaccines.

“The glovemakers’ top line is expected to be hit by the drastic fall of the US dollar. The windfall tax could happen on the back of lesser than estimated corporate tax collection and the persistently low crude oil price,” he told TMR.

Other price negative factors include the rise of raw material prices such as natural gas, nitrile, butadiene and rubber, and the sustained fall of the greenback, he said.