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Sunday, 31 January 2021

Tradeview Commentaries (30th Jan 21) - Why GameStop’s Phenomenon Resonate with Malaysia’s Glove Retail Investors Part

           


Dear all, the largest telegram group now consist of over 42,000 members. Since the “Glove Movement” started 4 days ago, it spread like wildfire capturing people’s attention. Notable experts, regulators, pundits, prominent investors have weighed in over the weekend on this phenomenon which was largely inspired by the GameStop rally in Wall Street. 

Many were quick to distinguish the GameStop, AMC stocks and the Gloves stocks in Bursa pointing out a short squeeze would not happen in Bursa due to the 4% RSS limit, glove stocks are not oversold up to 140% and robust regulations in Malaysia. I do agree that a short squeeze like GameStop will not happen for the Glove stocks in Bursa. 

However, those who assume retail investors are naive and this is just a elaborate ploy of some unscrupulous “Gurus” manipulating social media to start a “pump & dump” operations failed to recognise a crucial underlying issue. Why did GameStop resonate with Malaysia’s investors?

If you look at the largest telegram group, people from all walks of life are there, from VVIPs to students, all banding together for the Glove sector. It was an organic movement with no leaders. Hence, it is not right to brand and undermine those who participated in the group as manipulators. 

In my humble view, the common denominator is that retail investors share a strong distaste towards the short selling facilitated by some IB towards the Glove stocks. To be fair, whether Permitted Short Selling, RSS or IDSS are actually healthy for a vibrant stock market. It’s like your gastro system which flush out the bad elements to ensure your body is healthy. However, too much, too sudden or extreme cases, it cause a severe reaction. In this case, the short selling was not conducted towards a struggling company with weak fundamentals. It was towards fundamentally sound glove companies. Shorting selling by right, should be directed towards a overvalued or fraudulent companies like Luckin Coffee, Wirecard AG. 

Retail investors have found the glove stocks easy to understand, relatable and a story of entrepreneurship. Many view them as underdogs who succeed in the midsts of this economic debilitating global pandemic after years of hard work. To some, they feel a huge sense of pride to know Malaysian gloves are protecting the global population. I have not seen such unity in our increasingly fractured country since national badminton heroes competed for 4 gold medals in 2016 Olympics. Yesterday, the Government announced Malaysia recorded the largest trade surplus for December in 23 years. The Glove sector played a huge role there. In addition, even Bursa’s Chairman acknowledged if not for the 3 healthcare counters IHH, Hartalega & Top Glove, KLCI would have fallen 11% in 2020. Indeed, KLCI is one of the poorer performer in the region since 2021. This coincided with the massive selloff of glove stocks for the past 2-3 months. How did this happen? 

Sure, it started with the vaccine announcement in November 2020 which led to premature optimism by the investment fraternity on economic recovery and reopening spurring profit taking. This was further exacerbated by the Foreign IB’s research report which led to facilitation of massive short selling exercise at the start of the year. Citing The Edge, in the first trading week of the new year, there were 196.19 million shares worth RM1.09 billion shorted during that week. An old timer in the investing fraternity said he has never seen such weight of money being put on the table before this on Bursa. The short selling volume accounted for 56% of the week’s total volume. It did not end there and today Top Glove, Kossan & Hartalega are the 3 most shorted stocks in Bursa. Coincidently, these 3 stocks were sell calls with ludicrous TP in the Foreign IB’s report. Therefore, it would appear the Glove Movement in Malaysia is not about manipulating the market but a reactionary force. 


End Part 1


 
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