Glove counters, MCO jitters weigh down KLCI

Early selling on banking and glove counters sees local benchmark fall as much as 19.7 points


THE reinstatement of Movement Control Order (MCO) and expectations of weaker average selling prices (ASPs) on gloves have unnerved investors leading to volatility as trading volume eases.

Early selling on banking and glove counters saw the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) fall as much as 19.67 points in early trade before recouping losses to close up 2.66 points at 1578.33 points yesterday.

Malacca Securities Sdn Bhd head of research Loui Low said the downbeat sentiment on the economic environment has been a detriment to the local index and contributed to its downward course.

“The downtrend was due to this reinstatement of the MCO in several places. Most of the market players are anticipating whether this surge in positive cases will spike even stronger which would dampen the economic outlook.

“A gloomy economic outlook dampens the banking and glove sectors as subdued business environment leads to a slower GDP growth and that affects the banks, while the glove sector has been affected by lower ASP,” he told The Malaysian Reserve (TMR).

Low added that the downward sentiment is expected to sustain at least until the end of the week.

Glove counters continue to drag the local index with Supermax Corp Bhd losing 12.57% or 70 sen to close at RM4.87 yesterday, while Top Glove Corp Bhd fell 4.86% or 26 sen to RM5.06 and Hartalega Holdings Bhd fell 58 sen to RM9.25.

Other glovemakers like Kossan Rubber Industries Bhd fell 3.83% or 16 sen to RM4.02, Careplus Group Bhd fell 9.35% or 23 sen to RM2.23 and Comfort Gloves Bhd fell 8.57% or 21 sen to RM2.24.

Bank Islam Malaysia Bhd (BIMB) economist Adam Mohamed Rahim said investors and market observers should be on the lookout for other sectors that could be directly or indirectly affected by the resurgence of the Covid-19 cases.

“Oil and gas counters are a concern as infections in places like India, of which we have seen lockdowns in places such as Delhi, could dent oil demand and prices.

“Sale of petrol in India fell to 2.14 million tonnes in April compared to March at 2.74 million tonnes, the lowest since August last year, according to the preliminary data of state-owned fuel retailers,” he told TMR.

Adam believed the FBM KLCI could trade within a range of 1,550 to 1,580 points in the short term before advancing further to a region between 1,600 and 1,630 points as the vaccination programmes increased throughout the nation.

Adam said the drag in the local index could last for the next two to three weeks as the festive season usually coincides with thin trading volumes.

“Investors should be looking out for the upcoming GDP performance for the first quarter — which is expected to be released on May 11 — and how the nation’s economy has fared.

“Vaccination rates and trends of daily cases should be monitored by investors to get a sense of how effective the current MCO is in curbing infections.

“If infection numbers go downward, that could spell for a positive market movement later on.”

Despite the common market practice “Sell in May”, Loui said investors should be on the lookout for sectors that are doing well during the lacklustre season before reinvesting at the end of the year.

“We are already into May and we could expect some selling pressure. Investors, however, should be on the lookout for counters with high earnings certainty such as plantation, packaging, steels and selected technology counters,” he said.

Adam opined the “Sell in May” strategy may only be applicable for certain sectors such as energy and banking stocks, which are currently facing pressure amid the concerns from the coronavirus scare.

“Sectors that are resilient in the wake of the pandemic such as technology and telecommunications could be considered to be held on for time being,” he added.