Slump in glove stocks drags down Malaysian market

KUALA LUMPUR • 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 per cent decline this year, the third worst among key national indexes globally, shows that nearly two-thirds of that 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 the biggest drags.

Like elsewhere, investors shunned pandemic winners in Malaysia and embraced reopening plays, encouraged by widening vaccine coverage and lifting of restrictions on movement.

"Investor focus in the current stage of the pandemic is shifting from gloves to vaccinations," said Mr Geoffrey Ng, director at Fortress Capital Asset Management. "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 2022 outlook remains tepid amid corporate earnings risks due to higher taxes and political risks arising from the probability of bringing forward a general election that is 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 is a 8.6 per cent 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.

As for glove makers, their descent may not be over just yet.

Shares of some Malaysian glove exporters remain under pressure following allegations of forced-labour practices. Meanwhile, Bellwether Top Glove on Dec 10 reported a 92 per cent slump in first-quarter earnings amid weaker demand and high raw material costs. The stock saw a flurry of analyst downgrades soon after the results and is down about 30 per cent so far this month.

Last year, glove stocks became one of Asia's hottest trades at the height of the pandemic and helped spur a comeback by amateur investors. At one point last year, more than $1 of every $10 invested in the Malaysian stock market was a bet on gloves.

The sector's weight in Malaysia's benchmark index has shrunk to about 4 per cent from more than 10 per cent last year, the data showed.

BLOOMBERG