PETALING JAYA: Glove makers rallied as investors chased the stocks on expectations of a surge in demand following a new virus outbreak in Wuhan, China which is a strain of coronavirus.
Top Glove Corp and Hartalega Holdings Bhd, which are part of the 30-stock FBM KLCI, were the biggest movers in the index, surging to their highest since January last year.
Top Glove ended 29 sen higher at RM5.11 and boosted the KLCI by 1.31 points. Hartalega climbed 25 sen to RM5.80 and boosted the index by 1.49 points.
In the past, anxieties about the outbreak of viruses had seen healthcare stocks and glove makers share prices advancing in active trade.
CGS-CIMB Equities Research is retaining its “overweight” outlook on glove makers with Kossan and Top Glove as top picks.
“In the long term, we believe that this virus outbreak will lead to higher healthcare awareness especially in emerging countries, and in turn boost glove demand, ” it said in a research note.
In the latest update, the World Health Organisation (WHO) confirmed a new virus outbreak in Wuhan and it has called a meeting to be held today to consider declaring an international health emergency.
The WHO said the new coronavirus was likely to spread to other parts of China and possibly other countries in the coming days, Reuters reported.
“More cases should be expected in other parts of China and possibly other countries in the coming days, ” said WHO spokesman Tarik Jasarevic.
“So far in China, the virus has mostly been concentrated in Wuhan city, although isolated cases have also been reported in Shanghai and Beijing.
Global shares took a beating yesterday, wiping out all gains made at the start of the week as mounting concerns about a new strain of coronavirus in China sent a ripple of risk aversion through markets.
Authorities in China confirmed that a new virus could be spread through human contact, reporting 15 medical staff had been infected and a fourth person had died, Reuters reported.
CGS-CIMB Research expects the glove sector’s earnings prospects to improve, supported by better supply-demand dynamics in the sector. Our top picks are Kossan (add, TP: RM5.21) and Top Glove (add, TP: RM5.22).
“We view both stocks as laggard plays vs. their peers, including Hartalega (hold, TP: RM6.26), as we expect the valuation gap to narrow. Downside risks are stiffer-than-expected pricing competition and higher operating expenses, ” it said.
The research house pointed out the severe acute respiratory syndrome (SARS) is also a type of coronavirus that killed 774 of the 8,098 people infected in an outbreak that started in Guangdong, China in 2002.
CGS-CIMB Research said based on its channel checks, glove makers under its coverage has yet to witness a surge in demand for gloves owing to this virus outbreak.
“We attribute this to the fact that this outbreak is very recent while China does not have high glove usage per capita due to lower healthcare awareness vs. developed countries.
“In our view, glove makers will only see a sharp rise in global glove demand if this outbreak is prolonged and turns into a global pandemic. We witnessed this during the SARS outbreak in 2003 and avian flu in 2009. We estimate that global glove demand rose 12%-16% in 2003 and 2009 (vs. 7%-9% p.a. in 2009-19), ” it said.
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