EDITORIAL | Wednesday, 01 August 2007

Activity on the Stock Exchange

As the major capitalised companies begin announcing their half yearly results, it will be interesting to note if the stock market begins responding to the positive (or negative news) after almost a year of inaction. For it is quite strange to observe that after continuously record-breaking profits announced year after year by the majors, the MSE has been in the doldrums for quite a while now with barely any movement registered on the major share listings.
The two large banks are a case in point with HSBC regularly announcing record-breaking profits and with attractive dividends being offered, however barely a blip in registered trades. Something must be putting investors off the market. There is some understandable concern on the other share caps such as MIA and Maltacom (now Go) as these passed through some difficult times but with recently announced profits (up 20 per cent over last year), MIA should see some movement upwards. Again, barely a movement among shareholders in MIA with activity in the equity at a premium.
After the record bullish increases on the MSE in 2005 and 2006, the exchange has now been stuck at just under 5000 points for months now. It had reached a maximum of over 6200 points after a strong run in HSBC, Lombard and Bank of Valletta with share prices rising as much as 100 per cent over just a few months. Trading was a regular battle as stocks reached dizzying highs moving as much as 50c per share in a day.
These trading days are now things of the past with movements minimal and many days seeing almost no activity at all. In its Pre-Budget Document, the government is looking at initiatives to incentivise the Alternative Companies Index, which is a good step although clearly, a lot more needs to be done to increase activity on the MSE. There should be more of an investor culture with emphasis that the exchange is not there just to make a quick buck but should be seen as a market to foster long term growth and a fair return on equity.

Overheating property market?

Whilst the property market in Malta is going through an undoubted boom, one must be cautious and look around before investing. With a myriad of developments going on all over the place, the country has become one big construction site and although this indicates that this particular sector of the economy is booming, we must not simply let it get out of hand.
The Central Bank has raised interest rates 3 times in less than a year and this is undoubtedly putting pressure on first time buyers who have taken out large home loans at the limit of what they can afford. Banks are turning out home loans in large quantities as many attempt to scramble on board the property ladder with the share of the balance sheet dedicated to lending growing ever bigger all the time.
All this should lead us to observe what is currently happening in the United States. In the past few days, the New York Stock Exchange lost almost 800 points in a few days of trading as the housing slump began hitting investor confidence. This is due to the alarming rise in credit failings amongst several loan holders who are defaulting on their loans in increasing numbers. This is leading property prices to fall by as much as 100 per cent creating undoubted bargains for many but also bringing misery to others.
Although it looks like locally we have banks which are strong and moving ahead, it is instructive to note HSBC USA’s large rise in bad debt provisions which went up to almost USD 250 million, a significant rise in the whole scheme of things.
It looks like there is space for a healthy property market in Malta but we should be careful and heed international developments lest we kill the goose that is laying the golden egg.