KUALA LUMPUR (BLOOMBERG) – Malaysian stocks are among the world’s worst performers this year, and you can blame it all on rubber gloves.

A peek under the hood of the FTSE Bursa Malaysia KLCI Index’s 8.8 per cent decline this year, third worst among key national indexes globally, show that nearly two-thirds was caused by medical glove exporters – one of the pandemic’s hottest trades just a year prior.

The equity gauge is on track for a third year of underperformance versus the MSCI Asia Pacific Index, with Top Glove Corp and Hartalega Holdings the biggest drags. Like elsewhere, investors shunned pandemic winners in Malaysia and embraced reopening plays, encouraged by a widening vaccine cover and lifting of restrictions on movement.

“Investor focus in the current stage of the pandemic is shifting from gloves to vaccinations,” said Geoffrey Ng, director at Fortress Capital Asset Management. “The sector is giving up its stellar gains of 2020 and may continue to weigh on the market for a few more quarters.”

The rotation out of last year’s high-fliers intensified the headwinds buffeting Malaysia’s markets, from an economy weakened by lockdowns and a change in the government to the uncertainty over the Omicron variant and foreign funds fleeing ahead of expected rate hikes by the Federal Reserve.

The KLCI Index on Tuesday closed at its lowest level in 13 months and is on course for its worst annual decline since the global financial crisis.

The outlook for 2022 remains tepid amid corporate earnings risks due to higher taxes and the political risks arising from the probability of bringing forward a general election that’s due only in 2023, CGS-CIMB Securities analysts including Ivy Ng wrote in a note this week. The brokerage cut its end-2022 KLCI Index target to 1,612.

That’s a 8.6 per cent gain from Thursday’s close as CGS-CIMB expects a recovery in economic growth, extra liquidity at local institutions and cheap valuations to cap the downside.

As for glove makers, their descent may not be over just yet.

Bellwether Top Glove on Dec 10 reported a 92 per cent slump in first-quarter earnings amid weaker demand and high raw material costs. The stock saw a flurry of analyst downgrades soon after the results and is down 30 per cent so far this month.

The slump is a far cry from last year when glove stocks became one of Asia’s hottest trades at the height of the pandemic and helped spur a comeback by amateur investors. Last year’s gain in the sector was so astonishing that it made the rally in Elon Musk’s Tesla Inc. look like a comparative underperformance for some time.

At one point in 2020, more than $1 of every $10 invested in the Malaysian stock market was a bet on gloves – a feat that made the Southeast Asian nation a play on global hygiene, much as South Korea and Taiwan are for semiconductors.

The sector’s weight in Malaysia’s benchmark index has shrunk to about 4 per cent from more than 10 per cent last year, the data show.