November 29, 2021

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Celebrating Our National Pride, Gloves on Merdeka Day



31st August 1957 will always be a historical and meaningful day in the hearts of  all Malaysian. Whenever I see the chants of Merdeka by Tunku Abdul Rahman, there is a feeling of nostalgia and great pride that flutters in my heart. I am not able to explain that emotion. It closely resembles the moments when I witness our Malaysians athletes competing at Olympics. 
I have much admiration of the leaders and founding fathers of our country. The hardship and journey endured to bring up a small diverse nation like ours is extremely difficult. What makes it harder is liberalising the country from the shackles of colonisation of the British Empire and forging an uncertain future. Here we are now 2020, the start of a new decade where the world is divided, volatile and fearful in the face of Covid-19 pandemic, Trade War between US & China and protests raging on in various parts of the world. Will there be a resolution to these issues we are facing? 
A global pandemic of this scale was not what I imagined how the new decade would begin. Domestically, a change in government mid way through a 5 year term was a rude awakening. Then came the global lockdown of unprecedented speed to contain the pandemic came underway. This showed the resilience of mankind. No matter what challenges were thrown at us, we adapt.
KLCI Index was trading at 1554 points as at 2nd February 2020, it then plunged to a low of 1207.8 points on 19th March 2020 before rebounding to a high of 1618 on 29th July 2020 and settling at 1525 as of 28th August 2020. What a roller coaster ride for the market and investors. 
We have witnessed records being made as well in KLCI with the highest every retail participation for the year.  Bursa volume hit record high on 11th August 2020 with 27.8 Billion shares traded whilst Bursa value hit record high on 4th August 2020 with 10.45 Billion. August 2020 was even a Bursa historical record high in volume and value for the month with 264 Billion units traded and RM 128 Billion value traded. What does this signify? Well, if any investors were able to buy / invest shares during the March plunge and hold it through to August months, they would probably have made one of the best returns from the share market in their lifetime. At least for me personally, I can say, this is the best year in investment returns in the shortest span of time since I started investing my first dollar.
Our National Pride - Gloves Industry
I would bet my dollar that 90% participants in the share market must have invested or held gloves stocks at any one point in 2020. Most would make money. Similarly,  I would also bet that the number of those invested in gloves stocks have reduced following the onslaught of negative news flows from Russia’s Covid-19 Vaccine, Maybank’s Windfall Tax Research Report, AmBank Downgrade of Glove Sector to Neutral, JF Apex Cutting of Gloves Stocks Target Price, Bloomberg Negative Comments on Profit Taking from Fund Managers and so forth. This would have cause substantial anxiety to other investors who are still holding on to the Glove stocks. With MSCI Inclusion, Bonus Issue and Top Glove results in mid September, those who are invested must have a deep conflict whether to continue holding or just lock in profit and move on. At least, I have received the plenty of questions on this. 
I have written on the Gloves Sector extensively before. I wont repeat here in detail, for those who missed it, you can read it here again :
The Glove Sector was not built overnight. Today, Malaysia controls 65% of world supply with the next country being Thailand & then China at 18% and 10% respectively. Malaysia’s industry developed through sheer competitiveness, innovation and entrepreneurial spirit. In short, it is real “Kung Fu”, not fly by night con job tactics. The Glove Sector is also not the face mask or PPE sector. It is not easily replicated, it has high barriers of entry and there is no supply glut / potential supply glut. Unlike Face Mask & Covid-10 test kits :
Ex : face mask has a ceiling price which the government revised multiple times downwards. There is a supply glut in China.
Ex : Covid test kit is now affordable and fast with the latest being from Abbot Labs which cost only $5 per test kit which gives results in 15 minutes. 
Hence, it is right for investors to be fearful if they have chosen to invest in companies that ventured or announced MOU on producing face mask / distributing Covid-19 test kits. The same is not applicable to Gloves. The industry consolidated from 300 players in the 1990s to only about 40 players today in Malaysia with 20 world class suppliers. The industry went through intense R&D innovation with little support from Government, safety & quality standards certification and goodwill building with clients globally. Even the sector as a whole has evolved from vinyl plastic gloves to latex gloves to nitrile gloves. We all know Nitrile Gloves are what set us apart from our Thai and China counterparts. The king of Nitrile Gloves are right here in Malaysia - Hartalega, Riverstone, YTY, Kossan, Supermax and Top Glove. 
Gloves Sector is the only true bright spot in KLCI. It is also the glove stocks that single handedly lifted our index back to positive territory with substantial weightage today. Who would have thought that gloves (which is sold $10 sens per piece) would surpassed banks, casinos, plantation, utilities, telco, consumer and tech stocks in both value and volume invested? Hence this is why, Malaysia has a something unique to offer to the world which cannot be found elsewhere. Gloves did the extraordinary and placed Malaysia in global stage - for the betterment of mankind in the fight against Covid-19 pandemic. Personally, I am happy to root for the run to continue not only because I am invested but because this is one the rare occasions that Malaysia has a significant role to play in contribution towards mankind & humanity. 
Decision - To Take Profit or To Continue Riding?
I think before making any decisions, one must always know what is the pros & cons. This must be done in light of your own personal situation / background and recalibrate that fact with the pros & cons before deciding. One should not blindly follow newsflows. Just as there are good analysts & lousy analysts, there are also competent & incompetent fund managers and there are accurate newsflows & inaccurate newsflows too. Also, please do not listen to tips or follow prominent investors. You must consider holistically before deciding making your investment decision. I will share a few simple example which I hope can shed some light on making the right decision :
1. If you have substantial position invested in Gloves, you can consider taking 50% profit and ride the balance. This way you can protect your profit and enjoy the potential upside as well without having to run the full risk along the gyrations and volatility.
2. If you do not have a meaningful size in Gloves, you can consider to just continue riding all the way past Bonus issue and into the future quarterly results. This is because your position is small to make a dent in your overall portfolio, there is no harm riding.
3. If you have invested early and sitting on substantial profits (profits you have never experienced in your life), you are contented with the profits and do not want to stomach the risk of gyrations, then please sell all your holdings and enjoy the fruits of your investments. 
I was reading an article from a local newspaper over the weekend equating gloves with face mask & PPE, calling it game over for Gloves. This is the ignorance of people in position to influence market participants. There will be even more such negatives newsflows along the way. For me, I am of the view that the market has not fully understand the impact of the earnings of the Glove sectors. Currently, with only 2 quarters into supernormal profits in an unprecedented global pandemic with future earnings lock in for at least another 4 quarters, whilst the entire economy is in shambles, it is too early to throw in the towel. 

Food for thought: 
Malaysia Do Not Have FAANG. But We Have Gloves.
Insights 4 : Mega First Corporation Bhd - The Powe...

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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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