Shares of glove companies have been soaring in the last two days.
Market leader Top Glove Corporation Berhad (SGX: BVA) saw its share price jump by close to 44% from a low of S$0.72 last Thursday to close at S$1.04.
Riverstone Holdings Limited (SGX: AP4), a producer of healthcare and cleanroom gloves, saw its share price increase by 10%.
And smaller player UG Healthcare Corporation (SGX: 8K7) surged from S$0.26 to as high as S$0.42 for a 61% gain.
Even Malaysian-listed Hartalega (KLSE: 5168) saw its stock shoot up 26% to RM 6.46.
This bull run in glove stocks is probably caused by the recent discovery of a new and potentially more dangerous COVID-19 variant that originated from South Africa.
Dubbed “Omicron”, it has been classified by the World Health Organisation (WHO) as a “variant of concern”.
Researchers have discovered that there are 43 spike protein mutations for Omicron, more than double the number compared to the current Delta strain.
The sheer number of mutations is alarming as the virus has the potential to either become more transmissible and more deadly, potentially rendering the current vaccines less effective.
Preliminary data suggests there may be an increased risk of reinfection, but it should take days or even weeks to fully understand the implications of these mutations.
Investors are waking up to the fact that the pandemic is far from over and that healthcare gloves should still see high demand as countries hunker down to prepare themselves for a possible new wave of infections.
Until we find out more about this new enemy, WHO has advised countries to implement effective public health measures to control and contain the spread of COVID-19.
Vaccination continues to be an important tool in this fight as it helps to reduce the severity of the disease and prevents healthcare systems from being overwhelmed.
It remains to be seen if Omicron is more virulent than Delta or if it spreads much easier.
Glove companies may see a spike in demand as countries rush to stockpile more gloves, leading to a surge in sales in the short term.
However, several structural issues remain for the sector.
Many players, including the Chinese, are now rapidly ramping up supply by building new factories and committing capital to increase production lines.
It’s unclear if the surge in supply may still exceed the heightened demand for rubber gloves.
With many countries already sitting on stockpiles of gloves, new orders may only start trickling in early next year.
The problem of the average selling price should also persist as the large surge in supply has brought prices down for the commoditised product.
The above facts may suggest that the bull run for glove companies may grind to a screeching halt should Omicron turn out to be less dangerous than feared.
On the flip side, the world should not expect Omicron to be the last dangerous variant sequenced.
The nature of viruses is that they will continually evolve and adapt to increase survivability.
And in a world that needs to react to potential new future variants, rubber gloves will remain very much in demand.
Our beginner’s guide to investing is finally here! Many investors took years to understand the principles inside, but you can have it all in one afternoon. If you have just started investing, download our free guide today so you can catch up quickly. Click here to download now.
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.