Short Position - Unlicensed investment advice


  • Markets
  • Saturday, 25 Jul 2020

Unlicensed investment advice

IT is well known that this euphoric stock market performance is partly being driven by new retail investors. And many of these investors are being drawn to social media influencers talking about investing and the stock market.

If those speakers have the necessary qualifications and licences, then it is fair game. And if their focus is in education and they are cautious to put in clearly defined disclosures about the risks of investing, then it is not too worrying.

However, things get tricky when the advice is specifically on stock tips and is being dished out by parties who lack the credentials. In the most extreme case, some of these influencers have gotten so popular and confident that they have begun charging membership fees to the public to get access to their investment advice, especially stock tips.

Some of these take the form of VIP clubs on messaging platforms like Telegram. Such activities may be in breach of securities laws.

The question is... is the market regulator doing enough to trawl through the vast social media expanse to look for such activity? On the other hand, licensed investment advisers continue to be subject to strict rules set by the regulator, which entails education levels of analysts who publish reports. Most stock brokers run their research outfits as cost centres, providing it for the benefit of those who trade on their platforms.

Hence they must be feeling pretty peeved that new social media influencers are able to not only flout the law by dishing out investment advice sans the required educational training and licences but also making a tidy profit from it when they start charging fees for their advice.

Careful analysis of Careplus earnings

WHEN a company releases its quarterly results with huge percentage increases in profits against modest rise in revenue, it certainly draws attention.

Careplus Group Bhd’s latest quarterly result showed that the company’s profit was up by more than 2,400% compared to the corresponding period last year. Revenue was up only 30%.

Closer scrutiny reveals that of the RM37.5mil that Careplus registered in its second quarter result, a sum of RM15.4mil came from the one-off sale of its 50% stake in Careplus (M) Sdn Bhd to Australia-listed Ansell Group Ltd.

Nevertheless, even after stripping out the exceptional item, Careplus’ set of results are still impressive with a profit of almost RM22mil.

In February this year, Ansell acquired the stake for a total of RM37mil and the payment that was reflected in the books this quarter is part of the payment.

Hence from next quarter, Careplus’ results will only reflect 50% of the profit from the glove manufacturing operations.

Whether Careplus continues to show a huge rise in profit numbers in the subsequent quarters is something that is left to be seen.However, with Ansell as a partner, Careplus has a strong shoulder to lean on when the oversupply environment in the glove sector kicks in – likely within the next 18 months.

It is evident from Careplus results that all glove companies are on an expansion spree and not only the top four producers.

Careplus is expanding capacity and expects to double production from 4.1 billion pieces to 8.8 billion pieces by the end of next year. Towards this end, the company expects to install and commission 10 new lines by the end of this year and a further 13 by the end of next year.

To speed up the commissioning process, it is converting warehouses. And to fulfil its manpower needs, Careplus has proposed to purchase a budget hotel and adjoining shoplots in Senawang to house its workers.

Based on the expansion plans of glove companies, more supply may come into the market sooner than what many anticipate.

And if a vaccine is commercialised by end of this year, as envisaged, the oversupply in the glove sector may kick in sooner than we think.

It’s because of a few

THE rally in the glove stocks has been the talk of the market and it is no surprise given the stellar gains they have made.

Top Glove Group Bhd and Hartalega Holdings Bhd have registered such strong gains in such a short period of time that their performances alone has been credited to lifting the market up to new highs for the year even as the economy emerges from what will be a terrible contraction caused by the movement control order that basically shut down much of the economy.

Those two stocks have been responsible for around 160 points to the FBM KLCI which has seen the index spurt upwards over the past few months.Without those stocks the FBM KLCI would be around the 1,400 point level instead of close to 1,589 at the close yesterday.

But the concentration of stocks pushing up the market is not just unique to Malaysia. In the United States, the FAANG stocks – the heavyweight tech stocks like Amazon, Google, Apple, Netflix and Facebook – were responsible for much of the rise in the S&P 500.

Without those tech stocks performing very well and up significantly for the year, the S&P 500 would not be where it is today. Stripping out those five stocks, the S&P 500 will be in negative territory for the year.

The performance of the gloves stocks in Malaysia – just the top two largest ones – presents a risk to the FBM KLCI.

With Top Glove now the second largest company after a huge rise in its share price, and with other glove companies such as Supermax Corp Bhd and Kossan Rubber Industries Bhd also slated to be included in the FBM KLCI in the next constituent review as they are among the top 30 largest,

Aany downturn in the fortunes of those glove firms will have a huge impact on the FBM KLCI.And that concentrated risk is something Bursa Malaysia can do without when conditions surrounding glove stocks start to turn south.

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