Brokerage houses tighten margin financing on glove makers' stocks amid crazed trading

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KUALA LUMPUR (June 2): Both Maybank Investment Bank Bhd and RHB Investment Bank Bhd have tightened their share margin valuation on glove-related counters, starting today, following the recent craze for glove makers' stocks.

According to circulars issued by both investment banks, margin financing caps will be imposed on the shares of Hartalega Holdings Bhd, Top Glove Corp Bhd, Kossan Rubber Industries Bhd, Supermax Corp Bhd, Rubberex Corp Bhd and Comfort Gloves Bhd — at lower valuations compared to their current share prices.

For instance, Maybank has capped the share margin valuation for Hartalega at RM8.97, Top Glove at RM9.41, Kossan at RM7.87, Supermax at RM3.38 and Comfort Gloves at RM2.29.

RHB, meanwhile, is capping the financing limit to a 35% discount on the latest market closing price of Hartalega (or at a 35% discount on RM8.15, whichever is lower), Top Glove (or on RM8.64), Kossan (or on RM5.65), Supermax (or on RM5), Rubberex (or on RM2.31), and Comfort Gloves (or on RM2.35).

All glove counters took a dip today, following news of the tighter margin financing policy. 

Of the big four glove makers, Hartalega closed 3.34% or 44 sen lower at RM12.74, while Top Glove fell 4.76% or 74 sen to RM14.80. Kossan dropped 33 sen or 3.61% to settle at RM8.80, while Supermax declined 34 sen or 4.28% to RM7.61. 

The lower-liners dropped by a bigger margin. Rubberex sank 16.3% or 74 sen to RM3.80, while Comfort Gloves fell 10.7% or 45 sen to close at RM3.75.

One brokerage personnel who do not wish to be named said these brokerage houses' latest policies are designed to cut down their potential exposure to these glove counters, should there be a sudden about-turn in the recent share price surge.

The risk-on appetite has been evident among investors since the start of May, he said, when margin-financing share purchases started to pick up, in tandem with the surge in glove-related counters.

Just yesterday, the price-earnings valuations of Hartalega, Top Glove and Rubberex have breached the 100 times mark, which is rarely seen among manufacturing-oriented companies.

A dealer with a bank-backed brokerage house said he has seen many newbie investors taking part in the strong rally of the glove counters. What was worrying, he said, was how some took on leverage without truly understanding the current risk-reward scenario.

He said the heavy capitulation of the local stock market seen in February, which contributed to the fastest bear market formed in history, was a typical consequence of taking on too much leverage.

“It is going to get ugly,” he said, should the current bullish sentiment run out of steam, especially against the backdrop of immense economic headwinds experienced in the underlying economy.

A brief check on the ground indicated that most brokerage houses have experienced an overwhelming jump in application for new account openings. Some brokerage personnel even noted that clearing the current back-log of outstanding applications could stretch into the next month.

Interestingly, leading the surge in trading interest were the millennials, most said.

Last Friday (May 29), the local stock exchange’s daily traded value hit a record high of RM9.03 billion — surpassing its previous highest of RM9 billion in May 2018 — with a turnover of 9.308 billion shares.