PETALING JAYA: With another glove stock overtaking Public Bank Bhd to become the third most valuable company on Bursa Malaysia, the reliance of FBM KLCI on glove makers for its uptrend have only increased.
After rising by 8.7% yesterday to RM19.90 per share, the market capitalisation of Hartalega Holdings Bhd has touched RM68.21bil, just 0.3% higher than Public Bank’s RM68.02bil value.
Currently, the two FBM KLCI-linked glove counters, Top Glove Corp Bhd and Hartalega, are the second and third largest listed companies in Malaysia. Malayan Banking Bhd remains the largest company with a market capitalisation of RM88.02bil. Top Glove’s value is RM71.22bil.
The massive rise in glove stocks in a matter of only four months have been instrumental for the rally in Bursa Malaysia and the uptrend of FBM KLCI back to above the 1,600-point psychological level.
Top Glove and Hartalega have risen by 447.2% and 263.1% year-to-date respectively. As a result, the weightage of both counters for FBM KLCI have also increased, and as of July 28, Top Glove has a weightage of 6.81 points and Hartalega has a weightage of 6.11 points.
The FBM KLCI weightage depends on the market capitalisation of the 30 constituent stocks under the index.
With the high weightage commanded by both stocks, there are concerns that a potential major correction in share prices of Top Glove and Hartalega could drag down the barometer index.
Not only that, with two other glove stocks namely Supermax Corp Bhd and Kossan Rubber Industries Bhd to potentially enter the 30-stock FBM KLCI during the review in December, the weightage of glove stocks for the index could rise further.
Speaking to StarBiz, Inter-Pacific Securities Sdn Bhd head of research Victor Wan said a decline in share prices for the index-linked glove stocks could result in a pull back for FBM KLCI.
“Once the vaccine for Covid-19 goes to production, the demand for gloves and the average selling price for glove pieces will reduce gradually. This would result in a correction in glove stock prices and that would affect FBM KLCI.
“However, it is too early to tell when this will happen. One thing for sure, when the party’s over, there will be some hangover, ” stated Wan.
He believed the pullback in glove share prices could be significant, although he added that the demand for gloves could continue for at least one year.
Meanwhile, Rakuten Trade Research vice-president Vincent Lau said Top Glove and Hartalega have added about 150 points to FBM KLCI since the rally started in mid-March.
He believed that if Supermax and Kossan are eventually added to the index, the weightage contribution of glove stocks would only increase for FBM KLCI.
When asked to comment on the impact on FBM KLCI if there is a correction in the index-linked glove stocks, Lau said it is not a major concern.
“While glove stock prices could go down on lower demand for their products, perhaps the recovery in banking stocks would help to cushion the impact.
“Banking stocks are largely depressed currently but they could rise, moving forward, as the economy recovers, ” he said.
Lau added that it is not a major concern that several large stocks are dominating the main index.
“Elsewhere, you see a similar situation. In Nasdaq for example, the FAANG stocks carry a bigger weightage than others, ” he said, referring to Facebook, Amazon, Apple, Netflix and Alphabet (formerly known as Google).
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