Slumping Glove Stocks Drag Down Entire Malaysian Equity Market

    Malaysian stocks are among the world’s worst performers this year, and you can blame it all on rubber gloves.

    A peek under the hood of the FTSE Bursa Malaysia KLCI Index’s some 8.6% decline this year, third worst among key national indexes globally, show that nearly two-thirds was caused by medical glove exporters – one of the pandemic’s hottest trades just a year prior. 

    The equity gauge is on track for a third year of underperformance versus the MSCI Asia Pacific Index, with Top Glove Corp. and Hartalega Holdings Bhd. the biggest drags. Like elsewhere, investors shunned pandemic winners in Malaysia and embraced reopening plays, encouraged by a widening vaccine cover and lifting of restrictions on movement.

     On Friday, the KLCI Index edged 0.2% higher by midday, led by a rebound in those two firms. 

     “Investor focus in the current stage of the pandemic is shifting from gloves to vaccinations,” said Geoffrey Ng, director at Fortress Capital Asset Management Sdn. “The sector is giving up its stellar gains of 2020 and may continue to weigh on the market for a few more quarters.” 

     The rotation out of last year’s high-fliers intensified the headwinds buffeting Malaysia’s markets, from an economy weakened by lockdowns and a change in the government to the uncertainty over the omicron variant and foreign funds fleeing ahead of expected rate hikes by the Federal Reserve. 

    The KLCI Index on Tuesday closed at its lowest level in 13 months and is on course for its worst annual decline since the global financial crisis. 

    The outlook for 2022 remains tepid amid corporate earnings risks due to higher taxes and the political risks arising from the probability of bringing forward a general election that’s due only in 2023, CGS-CIMB Securities analysts including Ivy Ng wrote in a note this week. The brokerage cut its end-2022 KLCI Index target to 1,612. 

    That’s a 8.6% gain from Thursday’s close as CGS-CIMB expects a recovery in economic growth, extra liquidity at local institutions and cheap valuations to cap the downside. 

Source – bloomberg.com