Trading With A View

Author: tradeview   |   Latest post: Sat, 1 May 2021, 12:53 PM


(Tradeview 2020) - Malaysia's Gloves are like Swiss Watch. Simple Purpose, Intricate Process.

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Fellow readers who follow my articles would by now know I am a strong believer in the Glove sector and absolutely find the investment thesis for Glove stocks attractive even at this juncture. The recent end August-September sell off (the longest sell off and recovery, almost 6 weeks to return to earlier levels) was like a lightning bolt that jolt investors and the market. It was swift, strong and scary. I believe most retail investors would have either panic sell or seek to pray to almighty for some reprise. 

This was made worst by the naysayers reports, comments on media and string of news cycle that punished the glove stocks further. The apparent "nail on the coffin" was when a major local fund sold down the stock desperately for income recognition purposes. In my prudent estimation, I think billions worth of glove stocks was sold off by this major local fund alone in that duration. I may be wrong on the figures but ready to be corrected if proven otherwise. 

If not for the massive corporate share buy backs from Top Glove, Supermax and insider buy backs by Hartalega, Kossan and Riverstone, I believe investors' confidence would be further eroded. Then came EPF charging with guns blazing across all Glove stocks even UG Healthcare (Sg Listed) becoming substantial shareholders in most which was a true sign of confidence to the market. We must also note that President Trump who was infected by Covid-19 further heightened the awareness of this frightening pandemic where the most powerful leader of the free world is not spared. Then our own local Covid-19 second wave begun which started emptying malls and keeping people indoors again. The culmination of factors led to a strong rebound in the sector for the past week. 

This series of events led to a very obvious conclusion - many retailers, investors, authors, professional managers are driven by sentiments rather than facts / objectivity in their investment decisions or opinions. The innate nature of man is to seek solace and comfort in consensus. A simpler word - herd mentality, following the flow. Few and far between can take a contrarian view and act on it. And this is why majority of the people loses money when investing. If you can overcome this - you will be the minority that makes great investment decisions.

Looking back at all my articles, commentaries on my blog and telegram channel, you all can see every time the market sells off, I would write profusely in a bid to highlight to readers to remain calm, steady and take this opportunity to buy on weakness. When that feeling in your gut is at its max, that is the best time to buy. I for one knows it is very hard to execute. It took me years to do it and up until today, both myself and my subscribers are learning to adapt to new situations everyday. During this recent selloff and with the market rebounding, we are seeing the value of patience, objectivity and staying calm being rewarded. 

So why am I confident with the glove sector? I am not sure how many investors or professional managers have personally done a site visit with management of a glove company. I am fortunate to be able to do it multiple times over the course of past 1 year. As an outsider of the industry, I would describe well run glove companies are like classic watchmakers such as Rolex, Patek or Audemars Piguet. The function of a watch is to tell time. Simple purpose. But the process and machineries behind is a culmination of years of R&D, design and precision engineering. 

Glove is the same right? Its just something you wear on the hand. Simple. But each process of glove making from the boilers, dipping lines, packaging, testing, delivery have to be seamless and precise. Especially now, with constrained capacity and factories running at close to 100% operational capacity, the margin of error is so small that any slightest mistake would be immensely costly. Why is Rolex sports model selling at crazy price in the second hand / grey market? It is so ridiculous to a point that when you buy select models from a official retail store, the moment you walk out, the watch doubles in value. Think Submariner, Nautilus, Royal Oak and those in the same class. 

The reasoning for Rolex sports model watches being in demand is really quite simple : 

Demand has risen due to rising class of affluence, social media and appreciation for the finer things in life. 

Supply on the other hand is constrained. Rumours are Rolex only manufactures 1 million watches per annum and of these only a small allocations are sports model watches. 

Hence, when demand far outpaces supply met with constrained supply capacity, the price will just keep on rising. Even if it hits a plateau, it will remain elevated provided demand tapers or supply rises. Rolex keeps supply tight.  

Now apply the same reasoning for Rolex sports model watches to Nitrile Gloves : 

Demand has risen due to unprecedented pandemic sweeping across the globe for a prolonged period of time (almost 1 year now) 

Supply on the other hand is constrained. Medically certified grade or FDA approved Nitrile Gloves are wildly in demand compared to Latex, Vinyl and others. 

Hence, when demand far outpaces supply met with constrained supply capacity, the price will just keep on rising. Even if it hits a plateau, it will remain elevated provided demand tapers or supply rises.   

Just like watches, there are many brands and tier 1 brands are Patek, AP and Rolex. Some would argue Vacheron Constantin, A. Lange Sohne should belong up there too. Then of course you have your other brands like IWC, Breitling, Hublot, Panerai etc. (Note that I am excluding Richard Mille and the likes as those are out of the norm.) For Gloves, especially Nitrile Gloves, the Tier 1 gloves manufacturers are Hartalega, Riverstone and YTY. Therefore, like how Swiss watches commands the respect of the world buyers, when it comes to gloves especially Nitrile Gloves, Malaysia's glove makers have the same status as Swiss watchmakers.

These Glove makers have proven time and again they deserve to be where they are today. Ignore the noises, stay objective and take this opportunity of a lifetime to make a great investment decision where most investors in the world do not have the same access. 


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