WHILE further short selling of glove stock cannot be ruled out, the extent is limited by the newly imposed 4% cap on regulated short selling (RSS) aggregated net short position.
This is because when the Securities Commission (SC) and Bursa Malaysia announced the lifting of the suspension on RSS, the market regulators introduced two ‘enhanced control measures’, according to Kenanga Research.
The measures are (i) the daily gross short position limit for approved securities will be reduced from 3% to 2%; and (ii) a new cap of 4% on RSS aggregated net short position will be introduced.
“On the second measure, it appears there is little headroom for further shorting for Top Glove Corp Bhd,” wrote Kenanga Research head Koh Huat Soon in a market strategy that focuses on the short selling of glove stocks.
“Based on the average daily volume traded last week, it would take just over three more days before the 4% limit is reached assuming shorts are done at average daily volumes of the past week.”
According to Koh, data suggests that foreign institutions were the short sellers last week; immediately after Pfizer announced that its COVID-19 vaccine was 90% effective on Nov 9, gloves stocks were heavily sold off.
“During the period of Nov 10 to Dec 31, foreign institutions and local retail were the buyers while the local institutions were sellers,” he observed.
“The first trading week of 2021 saw foreign institutions selling which we believe were mostly made up of short sellers, while local institutions turned buyers and local retailers continued buying.”
Moving forward, Kenanga Research foresees a fair chance of some short covering soon although it cannot be ascertained if the short sellers were mostly hedgers or profit seekers.
“We believe the gloves stocks may have reached a trough last week,” suggested Koh.
“Even if the shorters continue, there is limited room for shorting bell-weather Top Glove. For profiteers who see prospects of a quick profit diminishing, short covering may soon follow.”
All-in, Kenanga Research said it remains firm in its “overweight” call on the rubber glove sector.
“Our analyst Raymond Choo remains steadfast in his ‘outperform’ calls on all the four stocks (Top Glove, Supermax Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd),” the research house noted.
“Market feedback we obtained seems to suggest that the recent sell-off have in no small measure been driven by fear of average selling prices (ASP) falling sharply to US$35/1,000 pieces by 2022.”
According to Kenanga Research, even if the ASP does fall to US$35/1,000 pieces from the current blended price of US$90/1,000 pieces, there remains upside to target prices for Top Glove (+27%), Hartalega (+54%), Supermax (+13%) and Kossan (+47%). – Jan 11, 2021
