Bad news has been a boon for Malaysia's rubber glove manufacturers, with the ringgit's drop and South Korea's MERS outbreak likely to provide a twin boost to profit.
Malaysia's rubber glove industry may sound like a minnow in the emerging market universe, but it can loom large in the global health-care market. It's the world's leading supplier of medical gloves, meeting more than 50 percent of global demand, according to the Malaysian Rubber Export Promotion Council.
"A firmer U.S. dollar remains a boon to the export-oriented glove manufacturing sector, since glove makers are expected to benefit from higher ringgit-denominated revenue given that the bulk of sales receipts are denominated in U.S. dollars," Lester Chin, an analyst at UOB KayHian, said in a note last week. "Furthermore, with most commodities traded in U.S. dollar, the stronger greenback could help prolong the current period of soft raw material costs."
He estimates that industry earnings rise around 3-5 percent for every 1 percent rise in the U.S. dollar against the ringgit.
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That could translate into a decent fillip: the ringgit has shed more than 3 percent of its value against the greenback so far in June, touching its lowest levels since early 2006; the currency was unpegged from the U.S. dollar in mid-2005.
Indeed, Chin noted that one glove maker, Hartalega, saw its average selling price for gloves fall 4.4 percent on-quarter in its fiscal fourth quarter, but that was still a 3 percent on-quarter improvement once it was translated into ringgit. Sector earnings overall rose 15 percent on-quarter in the first quarter, largely thanks to the decline in the ringgit, Chin said.
Demand for rubber gloves could be set for a spike soon, thanks to another bit of bad news: the spread of Middle East Respiratory Syndrome (MERS) in South Korea.
As of Wednesday, South Korea authorities reported a total of nine deaths and a total of 108 infections. Several countries in the region, including Malaysia and Hong Kong, have issued precautionary travel warnings in response to the outbreak.