Source: TradingView.my

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. Short selling by right, should be directed towards 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

Trade view Commentaries (1st Feb 21) - Why GameStop’s Phenomenon Resonate with Malaysia’s Glove Retail Investors Part 2

In the past year, retail investors participation in stock market globally like US, South Korea were at record highs. This is largely due to the prolonged Covid-19 lockdown and flood of liquidity expanding the money supply in the economy (M3).

Locally, in 2020, foreign funds outflow from KLCI ballooned to RM25 billion. On the contrary, Retail investors were net buyers at RM14 billion and local funds at RM11 billion. Hence, it can be concluded it was retail investors who supported KLCI. As a result, Bursa is on track to deliver record profits for FY20/21 due to record high retail participation, so are the IBs and other brokerage firms. Active retail participation is a boon for the stock market. If social media changes the landscape and levels the playing field between retail investors and institutions, it should be welcomed. Of course some level of oversight is a must to prevent abuse however the same can be said towards the conduct of the Foreign IB whose research report was a sales piece to pitch to institutions to capitalise on RSS ban lifting in KLCI to short the 3 glove stocks. If Regulators intend to clamp down on retail investors, equal scrutiny should be accorded to those questionable IB’s analysis.

Irrationality in the stock market swings both ways and over time it will normalise. A fundamentally sound stock will not go down indefinitely. When the buying volume and momentum outweigh selling, the share price goes up and vice-versa. The point to note, however, it is important for funds to come in to support for share price ascension. For glove stocks, it has been punished irrationally and retailers banding together can be seen as a reactionary market forces.

Indeed, the circumstances of GameStop vs Gloves stocks while sharing a common distaste for shorters, the substance is different. Unlike GameStop, the Glove stocks are undervalued, delivering continuous record profits and good dividend yields. The demand won’t disappear overnight just as when I repeatedly said the vaccine announcements won’t eradicate Covid-19 instantly. 3 months since Pfizer / Moderna announcement, globally and Malaysia is in a much worst state than 1 year ago. For those who choose to ignore the supernormal profit of glove stocks, please reassess your valuation model impartially. This is not the same where a company disposes their core business and net a huge windfall, declare one-off dividend and is left without a profitable business the next year. How many times have we seen the glove stocks grow post pandemics (H1N1, SARS)?

I understand valuation is subjective. The argument can go on indefinitely. So let’s leave it as that. I am just a blogger and a retail investor. In my years writing, I have always put the interests of my readers and retail investors close to my heart. It pains me to see many subjected to losses resulting from “pump & dump” operations. This means I would not write on companies or sectors which I deem risky, questionable or fundamentally weak.

I would like to take this opportunity to share my honest view on the “Glove Movement” with retail investors.

1. Do not invest in glove stocks if you don’t believe in the fundamentals and not willing or able to hold for the long term.

2. Do not get carried away, caught up in the hype and be emotional. No point using hard earned money to spite anyone, be it IBs or shorters. They don’t care about you, only their books.

3. Do not use margin to invest in stocks, only excess cash. Invest within your means at all times (regulators can clamp down, banks can impose margin caps anytime)

4. Avoid structured warrants, derivative products especially if you have no knowledge.

The stock market will keep evolving with the advancement of technology. Retail investors, looking out for each other may just be a new way forward. I do not know for sure, but this is surely an experience we will all remember.

End Part 2