Monday, October 19, 2020

Investors give glove producers the benefit of the doubt, chase stocks higher

PETALING JAYA: Malaysian glove producers, which are syariah-compliant counters, seem to be receiving the benefit of the doubt from investors, ending the week mostly up, despite the decision by the US Department of Labor to place Malaysian-manufactured gloves on its list of goods produced by forced labour.

On Friday, Hartalega Holdings Bhd closed 1.77% or 32 sen higher at RM18.38, Kossan Rubber Industries Bhd ended the week at RM8.04 an increase of 0.75% or 6 sen and Top Glove Corp Bhd closed unchanged at RM9.34

Meanwhile, Supermax Corp Bhd fell by 0.38% or 4 sen to close at RM10.50.

William Capital Plt’s chief investment officer William Ng pointed out that the syariah-compliant status of the equities – which acts as proxy to environmental, social, governance (ESG) values, an increasing measure of import to institutional investors – might have been given the benefit of the doubt by smart money investors to resolve the issue.

“Should the issue persist in the long term, institutional investors might have to sell off their holdings if it is not resolved,” he told SunBiz.

According to an EY Climate Change and Sustainability Services (CCaSS) survey released in August, institutional investors have ramped up their assessment of ESG factors to assess the performance of companies, with 98% of respondents evaluating non-financial performance based on corporate disclosures, with 72% saying they conduct a structured, methodical evaluation, a leap forward from the 32% who said they used a structured approach in the survey’s fourth edition in 2018.

The latet survey also found that investors are increasingly holding companies accountable, with ESG factors playing a central role in their decisions with 91% of investors stating that non-financial performance has played a pivotal role in their investment decision-making over the past 12 months, either frequently or occasionally.

The correlation between syariah-compliant companies and ESG values is evident with analysis of 7,636 public listed corporations by asset management firm, Arabesque commissioned by Salaam Gateway, which found a 7.8% higher mean ESG scores in syariah-compliant companies compared to the wider dataset.

Ng concurred with the increasing importance of ESG factors in the current investing climate, as institutional investors tend to avoid counters that are not compliant which will dampen its valuation.

In Malaysia, he pointed out, this habit has yet to take root, especially among the retail investors. “In the future, retailer investors will be more mature and understand the importance of ESG which would lead to downward pressure on companies faced with similar news.”

That said, according to the EY survey, the demand for sustainable finance focusing on ESG considereations has been gaining momentum in Malaysia since the launch of the Sustainable Responsible Investment framework in 2014.

As at June 2020, a total of nine investment managers and asset owners in Malaysia – which include the Employees Provident Fund, Khazanah Nasional Bhd and Kumpulan Wang Persaraan – have signed the United Nations-backed Principles for Responsible Investment, under which they pledged their commitment towards ESG best practices and sustainable investing principles. This includes embedding ESG considerations into investment analysis and decision-making processes, as well as seeking appropriate ESG disclosures from investee companies.

It should be noted that of the “big four” – Hartalega, Kossan, Top Glove and Supermax – only two (Hartalega and Top Glove) are included in the FTSE4Good Bursa Malaysia Index, with Top Glove being the only one coming in the top 25% by ESG ratings among listed companies in FBM EMAS that have been assessed by FTSE Russell.

Both Kossan and Hartalega come in the top 26-50% by ESG ratings, while Supermax sits in the top 51%-75% by ESG ratings.

Juwai IQI Global’s chief economist Shan Saeed (pix) commented that more and more global investors are moving to healthcare while keeping ESG values in mind.

However, he opined that the US is blowing the issue with Asia-based glove producers out of proportion.

“The challenge for the USA is many America-based companies can’t compete with Asian companies and they apply other tactics to control the growth and valuation of these companies,” said Shan.

He highlighted that the glove manufacturers have always complied with rules and regulations and quality control, and have taken good care of the manpower issues as well.

“In the end, all companies are competing for market share and competitive positioning and Asian glove manufacturers will take the lead in having enhanced valuation in the next two to three years,” he said.

He projected that Asian glove manufacturers will continue its rise towards the end of the second half of the year.

Shan said global investors have more confidence investing in Asia or emerging markets where growth and valuations are rising and aggregate demand for healthcare and medical equipment are strong and stable.

“Global investors are looking for stability and solid cash flows of companies while investing along with strong fundamentals of the industry.

“Markets continue to be driven by the interplay between economics and epidemiology. Investors and policymakers are weighing the support offered by unprecedented central bank liquidity provision against concerns over a second wave coming in the market,” he added.



Source: The Sun Daily

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