(Bloomberg) — The recent progress in developing a vaccine for the coronavirus is posing a threat to the meteoric rise of Malaysian glove-maker stocks, one of the hottest sectors in Asia amid the pandemic.
Shares in the sector’s biggest companies such as Top Glove Corp., Hartalega Holdings Bhd. and Supermax Corp. each dropped more than 6% on Tuesday on signs that the Trump administration may fast-track vaccines and treatments for coronavirus. The U.S. is expanding access to a treatment involving blood plasma from recovered patients and the Financial Times separately reported Trump’s government is considering whether to bypass regulatory standards to accelerate an experimental vaccine.
Danny Wong, chief executive officer at Malaysia-based Areca Capital Sdn., said in an interview that investors will be better off taking some profits in glove stocks over the next few quarters as news on vaccine development has been positive. “Stocks have already rallied a lot,” Wong said.
The surge in glove makers, driven by supernormal demand for protective wear, has underpinned the resilience in Malaysia’s stock market which is close to erasing this year’s losses and has been leading its Southeast Asia peers. Any faltering in those shares could hurt retail investors who piled into hot stocks in the country. Top Glove is still by far the best-performing stock on the MSCI Asia Pacific Index this year.
“Investors need to ask the question if they are forecasting too much into the future” as positive news flow on a vaccine has started picking up, said Nirgunan Tiruchelvam, head of consumer equity research at Tellimer.
Analysts expect Top Glove’s net income to reach new records in each of the next four quarters with about 889 million ringgit ($213 million) for the three months ending May 2021, according to Bloomberg-compiled data.
As market participants rushed to upgrade earnings for the company, Top Glove’s valuation multiple on forecast profit dropped to 18 times from a record high of 43 times in May. That is around its 10-year average, data compiled by Bloomberg show.
“The opportunity is far, far less attractive than in March” for glove makers, said Burton Flynn and Ivan Nechunaev, fund managers at Terra Nova Capital Advisors Ltd. that invested in Supermax earlier this year. The fund has been paring its holdings of the stock amid the rally for risk management, and it now sees the position “more as a hedge” in the portfolio.
(Adds more context on vaccine development after second paragraph)
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