Jewellery firms in Malaysia soar 400% as retail chases gold rally
After helping boost a glove maker to the top of this year’s Asian stock-performance charts, Malaysia investors have recently been driving up the nation’s gold-related equities on the back of a rally in the precious metal.
Shares in little-known Malaysian jewellers including Niche Capital Emas Holdings Bhd. and Tomei Consolidated Bhd have more than doubled in the past few weeks. Small caps related to gold are seen as another way to play the yellow metal, which climbed to a record this month on inflation worries following massive central bank easing to fight the pandemic, and a drop in real interest rates.
The gains have been aided by a boom in individual investing in the Southeast Asian country. The growing retail participation has partially fuelled the benchmark FTSE Bursa Malaysia KLCI Index’s outperformance of its Southeast Asian peers. Top Glove Corp’s nearly 500% jump this year is by far the best on MSCI Inc’s broadest Asia equity gauge.
With stock trading volumes rising to record levels, Malaysia is preparing measures to curb excessive speculation by retail investors. While glove makers have started to see strong earnings due to a virus-fuelled focus on health and hygiene, investments like gold stocks are seen as somewhat more risky bets.
“These gold stocks are up due to a lot of speculative buying by retail investors,” said Danny Wong, chief executive officer at Areca Capital Sdn. “One should buy physical gold not gold stocks if the view is that the yellow metal’s price will rise,” said Wong, who doesn’t own the Malaysian jewellery stocks.
He’s not alone in sounding a note of caution. Delbrook Capital Advisors Inc, a Canadian hedge fund specializing in metals and mining, has begun trimming its gold stock exposure amid high valuations.
Niche Capital has seen its market capitalisation skyrocket more than 400% since July 16 to about $50 million. It’s trading at more than 6 times book value, compared with 1.3 times for the Bursa Malaysia Consumer Product Index.
Shares of Niche Capital and Tomei Consolidated each fell more than 3% Tuesday as the KLCI dipped. The declines followed a two-day drop in the price of gold and bucked advances in global stock markets following optimism on the development of Covid-19 vaccines.