PETALING JAYA: The local stock market started the week lower, weighed by rubber gloves and technology counters amid a fresh wave of coronavirus (Covid-19) cases globally.
A remisier reckoned that retail investors are turning their interest to other sectors.
Trading on Bursa Malaysia was also affected by the anticipation of sluggish gross domestic product (GDP) numbers for the second quarter of this year, the flare-up of US-China tensions and ongoing domestic political uncertainties.
Yesterday, the benchmark index FBM KLCI closed 6.48 points or 0.41% lower at 1,571.66 points.
The top decliners included Supermax Corp Bhd, Kossan Rubber Industries Bhd, Hartalega Holdings Bhd, Top Glove Corp Bhd, Malaysian Pacific Industries Bhd, Comfort Gloves Bhd, and Rubberex Corp (M) Bhd.
The broader market was optimistic with gainers more than losers at 617 to 538 due to a strong interest by retailers. A total of 340 counters were unchanged.
Affin Hwang Capital Research said strong retailer interest has supported the local stock market despite the continuous net outflow by foreign inventors over the past seven months. that the local stock market has
“In fact, it has outperformed its regional peers, ” it said in a report yesterday.
“The KLCI’s performance can, however, be attributed to strong retailer interest and a solid thematic play.
“The market’s turnover velocity is at an all-time high, as retailers swamped the market during this loan moratorium period, in our view, ” it added.
Affin Hwang said that as at end-July, retailers accounted for 35% of market participation, compared to 22% a year ago, and has continued to rise compounded by gains and a herd mentality.
The FBM Small Cap index is up 77% from its year-to-date lows and more than double of the main index FBM KLCI.
Apart from the small caps, Affin Hwang said the glove manufacturers have been in focus due to their improved fundamentals underpinned by a surge in demand while capacity remained restrained, leading to an unprecedented 40% increase in average selling prices (ASP).
It expected that the glove sector earnings for 2021 sector to jump 38.3% after surging 244% this year.
Excluding Top Glove and Hartalega, the research house said the other KLCI components were “pretty lifeless” and down an average 10.8% this year.
According to MIDF Research, foreign net outflow accelerated on Bursa to the tune of RM937.5mil net last week, marking the 25th consecutive week of foreign net selling.
So far in 2020, foreign investors have sold net RM19.9bil of Malaysian stocks.
“In emerging South-East Asian markets that we monitor, the majority of the markets continued to experience foreign net outflow due to prospects of slower economic recovery as Covid-19 cases resurged and (countries face) potential renewed lockdowns, ” MIDF said in its weekly fund flow report yesterday.
Meanwhile, a former investment banker said that the euphoria in rubber gloves manufacturers is tapering off and likely to continue until there is a rerating of the sector.
“There is no doubt that the ASP of nitrile gloves has risen tremendously and should continue to rise until year-end.
“We expect spot prices to accelerate by 15%-20% in the second half of this year. It is likely their earnings for glove manufacturers will peak in the calendar year 2021, ” he told StarBiz.
Affin Hwang has raised its 2020 KLCI year-end target to 1,650 based on a five-year price-earning ratio of 19 times from previously 17 times on the back glove players, which will continue to do well over the near term and lift the KLCI index.
It said it is still premature to expect long-term sustainable gains for the KLCI at this point, but for the near term, the market will be buoyed by the strength of market liquidity, suspension of short selling activities till year-end and the doubling of daily online settlement limits.
“The key risks for the market would be an earlier-than-expected vaccine for Covid-19, which could result in a collapse of glove stock prices and the KLCI; a sovereign rating downgrade; further weakness of the US dollar and resulting fund inflows; a sharp decline in oil prices and geopolitical risk, ” it said.