Good days are over for glove stocks?

7 major-listed rubber glove counters lost a total of RM19b in market capitalisation on Tuesday


THE share price rally in glovemakers on Bursa Malaysia appears to have been exhausted as shares of the companies failed to recover losses made on Tuesday after logistical concerns were raised on the distribution of the potential Covid-19 vaccine candidate by US drugmaker Pfizer Inc and German biotech firm BioNTech SE.

With money moving into cyclical counters like banks and utilities, the seven major-listed rubber glove counters, which lost a total of RM19 billion in market capitalisation on Tuesday, struggled to retrace losses yesterday.

Malacca Securities Sdn Bhd head of research Loui Low said the announcement of the success of Pfizer’s Covid-19 vaccine on Monday has fundamentally changed the way investors invest and trade at this juncture.

“Switching funds from healthcare or glove stocks towards the recovery play has contributed to the price correction in the healthcare-related stocks,” he told The Malaysian Reserve in a phone interview yesterday.

He added that glovemakers’ stocks are likely to stay under pressure in the coming days as investors continue to shift portfolio holdings to sectors such as tourism, aviation, leisure, gaming, banking and real estate investment trusts.

Top Glove Corp Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd closed marginally higher by 0.77% or six sen to RM7.86, 0.79% or seven sen to RM8.90 and 0.91% or six sen to RM6.64 respectively yesterday.

Hartalega Holdings Bhd closed 1.27% or 20 sen lower at RM15.50, while smaller producers like Comfort Gloves Bhd and Rubberex Corp (M) Bhd gained 0.24% or one sen to RM4.11 and 0.45% or one sen to RM2.24 respectively, while Careplus Group Bhd lost four sen or 1.27% to RM3.11 yesterday.

On Tuesday, investors sold shares in Top Glove, Hartalega and Supermax which fell by 8.02% to RM7.80, 13.83% to RM15.70 and 8.31% to RM8.83 respectively on the Pfizer’s vaccine trials announcement.

The Healthcare Index was dragged down by the glove stocks after the announcement, in which it declined by 1.78% to 4,048.89.

It was believed that the phenomenon was due to investors rushing to get rid of their holdings in glove stocks as the vaccine announcement showed evidence of safe and effective immunisation against the virus.

In a research note on Tuesday, AmInvestment Bank Research reiterated that the market will continue to shift from predominantly pandemic-themed plays to a recovery-focused theme in December.

“We have been advocating for investors to lighten their position in the ‘pandemic play’, which is glove stocks, and replace them with the ‘recovery play’.

“With the latest positive news coming in a rather abrupt manner, we expect volatility as investors of glove stocks rush to the exit at the same time,” the investment bank wrote.

It added that the two FTSE Bursa Malaysia KLCI (FBM KLCI)-weighted glove stocks, Top Glove and Hartalega, command a combined weighting of 13% to 14%.

The investment bank has downgraded the glove sector to ‘Neutral’ from ‘Overweight’ on Aug 25, on the back of positive news on vaccine development.

“We are putting the fair values for glove stocks under our coverage under review with a negative bias. We still expect the gains in the recovery play to be significantly offset by losses in the pandemic play. This explains the rationale for us to maintain our FBM KLCI target despite this overwhelmingly good news,” it noted.

To recap, Pfizer and its German partner BioNTech announced on Monday night their experimental Covid-19 vaccine was more than 90% effective with no serious safety concerns based on initial trial results.

Pfizer estimated they can roll out up to 50 million doses this year for 25 million people and produce 1.3 billion doses in 2021.

Separately, Russia announced yesterday that its Sputnik V vaccine was 92% effective at protecting people from Covid-19, according to the country’s sovereign wealth fund.

The Russian Direct Investment Fund said the results are based on data from the first 16,000 trial participants to receive both shots of the two-dose vaccine.

It added that the initial results are only the second to be published from a late-stage human trial in the global effort to produce vaccines that could curb the Covid-19 pandemic.

Russia registered its Covid-19 vaccine for public use in August, in which it was the first country to do so, though the approval came before the start of the large-scale trial in September.

Read our earlier report here