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KLCI continues rally as gloves lift market

01 Jun 2020 / 23:01 H.

PETALING JAYA: It would appear the party is not yet over for Bursa, as the FBM KLCI closed at 1,490.14 – the highest level seen since March this year – a gain of 1.15% or 16.89 points over its previous close of 1,473.25 points on Friday.

The overall market breadth was however negative with decliners marginally outpacing gainers 574 to 511. Total volume rose to 10.3 billion shares worth RM6.73 billion, from 9.04 billion shares worth RM9.31 billion last Friday.

Rubber gloves counters registered the biggest gain led by Top Glove Corp Bhd, which closed at an all time high of RM15.54, a 16.84% or RM2.24 gain over its previous close of RM13.30, followed by Rubberex Corp (M) Bhd with a 27.53% gain of 98 sen to reach an all time high of RM4.54.

Hartalega Holdings Bhd hit RM13.18, with a gain of 5.1% or 64 sen, Comfort Gloves Bhd reached RM4.20 as it rose 16.02% or 58 sen and Adventa Bhd soared by 29.55% or 52 sen to settle at RM2.28.

Cumulatively, Top Glove and Hartalega contributed 14.94 points to the composite index.

MIDF senior analyst Imran Yusof believes that the rise in the KLCI is due to a confluence of factors, namely the performance of the regional markets and the general optimistic sentiment that the economy will rebound following the conclusion of the movement control order (MCO).

He also noted that the good performance and general rise in the index may spur some investors to join in and further fuel the rise.

“Of course, glove companies will continue their stellar run given that we are still in a midst of a health crisis in which these companies will become key beneficiaries, from higher sales,” Imran told SunBiz.

He noted that experts have also warned of the possibility of a second wave of Covid-19 infection which the sector would undoubtedly benefit from.

“However, having said all this, we have to remain cautious and be mindful of the downside risk. The riots in the US and the increasing tension between the US and China will increase the volatility.”

A local fund manager also echoed the sentiment, telling SunBiz that investors are cashing in on the opportunities the current market volatility presents, but the market will likely start to correct in July, when the intraday short selling on stocks is allowed to resume.

“The stocks are hot, but it doesn’t really reflect the situation on the ground. Retail investors are always looking for opportunities and the volatility we are seeing now is good news for them as it presents chances to realise profit immediately,” he said.

AmInvesment Bank Research (AmResearch) has upgraded its end-2020 target to 1,530 pts based on a 18x revised 2021F earnings projection, from its previous target of 1,300 pts based on 15x 2020F earnings projection.

“At 18x, our basis is consistent with the 5-year historical average,” it said in a report.

The research house explained that its revised target is based on the robust domestic liquidity from institutional and retail investors which have neutralised persistent foreign selling, massive re-rating of the already high P/E glove sector (which now has a 9% weightage in KLCI) due to the strong demand for personal protective equipment from the pandemic which is expected to remain with the stronger hygiene awareness and practices around globally.

It observed that the political situation does not seem to be weighing on market risk premium as local investors that are dominant in the market, are calm in the face of it.

“Furthermore, the local economy that is on the verge of being reopened in a more extensive way, thanks to the relatively successful containment of the spread of the Covid-19 virus via the MCO and conditional MCO over the last 2-3 months,” said AmResearch.

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