(Bloomberg) – A relatively low-tech stock trade is making Tesla Inc.’s breakneck rebound look like underperformance.
In Southeast Asia, rubber glove makers are attracting more investor fervor than even Elon Musk’s electric cars and flamethrowers. Top Glove Corp. is up 389% this year in Kuala Lumpur, the most on the MSCI Asia Pacific Index, while Supermax Corp. is up more than 1,000%, compared to Tesla’s 259%. That’s due to the surge in demand for gloves thanks to the coronavirus pandemic, helped by a short selling ban in Malaysia through the end of the year.
The meteoric rise was unprecedented in Malaysian standards, and the top three glove makers added around 109 billion ringgit ($ 26 billion) in combined market value this year. More than $ 1 out of every $ 10 invested in the nation’s stock market right now is a gamble on gloves, a feat that makes the Southeast Asian nation play with global hygiene, just like South Korea and Taiwan are for semiconductors. Top Glove resumed its recovery on Friday, even after the United States moved to block imports of two of its units.
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“The recovery of glove makers is reminiscent of Tesla, but the sector’s earnings outlook is more secure than Tesla’s,” said Ross Cameron, a fund manager at Northcape Capital Ltd., which has around $ overseas. 7 billion in assets worldwide. The short selling ban has made a minor contribution to the recovery, while “we expect the sector to report earnings growth significantly greater than 100% next year,” he said.
Fund managers at Northcape and Samsung Asset Management have stepped up their bets in the sector this year by saying that the change in glove demand is structural and many market participants are still behind the curve.
The odds of glove makers’ shares getting a higher institutional allocation will also increase as smaller companies now become large enough to be included in the key indices followed by international investors.
Supermax and Kossan Rubber Industries Bhd. They will join the MSCI Malaysia index after a review next month due to the meteoric rise in their share price, Brian Freitas, an analyst at Smartkarma wrote in a note last week. “The shares now rank very high in the free float market capitalization,” the note added. Kossan shares have risen 225% so far this year.
Still, a faster-than-expected development of a vaccine to treat Covid-19 runs the risk of slowing the dramatic recovery in glove maker stocks. Customs and the US Border Patrol have placed an arrest warrant on disposable gloves made by Top Glove. Top Glove said in a statement on Thursday that the problem may be related to the foreign workforce and is contacting US Customs to try to resolve the matter within two weeks.
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Fund managers and analysts said the company could still send its gloves to the US using other units. Furthermore, any cancellation of orders would be offset by demand from other countries due to severe shortages.
For now, order books have increased, glove prices have soared, and companies are aggressively expanding their ability to fulfill orders.
(Adds Smartkarma’s note on the possible inclusion of the MSCI index in the sixth and seventh paragraph).
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