Editorial

It may not have made front-page news, but last Friday the Malta Stock Exchange experienced one of the most remarkable one-day increases in its 14-year history. Its index rose 3.334 per cent to an all-time high of 5,990.241. For the week, the MSE index rose a remarkable 6.24 per cent.

To get an idea of what this means, it can be put in another way: what one normally earns in interest in a year (on a normal bank deposit account), has been earned by shareholders, in terms of capital appreciation, in one day. Of course, holders of particular equities have done even better - for example, the value of HSBC shares (of which more later) rose over 12 per cent in one week.

The Malta Stock Exchange, in other words, since last November has been experiencing a practically uninterrupted bull run, driven, no doubt, by the excellent results obtained by our banks and also by the privatisation, actual or planned, of government holdings.

The value of shares, as we are constantly reminded, can go up as well as down. However, there would be no bull run, and no record profits for any of the companies listed on the MSE, without investor confidence. Such confidence indicates that despite lower than expected economic growth, Malta's economic fundamentals remain sound.

The feeling among investors, indeed, is that Malta can do much more to exploit the advantages which European Union membership entails. This small island, with direct and unfettered access to a market of 450 million consumers, with its enormous advantages of location, an English-speaking and highly skilled workforce, and sense of entrepreneurship, should become a magnet for foreign investors seeking to expand their business by tapping into the huge and affluent European market. Malta's adoption of the single European currency (planned for January 1, 2008) should enhance its attraction to the foreign investor and stimulate economic growth.

The present seemingly unstoppable rise of the MSE index is also a reflection of the lack of sufficient investment opportunities - "too much money chasing too few goods". Clearly Maltese savers have money to invest, but too few local equities to invest in. Disappointingly, the Malta Stock Exchange has so far failed to attract more local companies to enlist.

This could be because going public may be quite expensive for some companies, whose turnover cannot be compared to that of the banks; it could also mean that many companies, the majority of them family-owned, are reluctant to dilute their ownership by inviting outsiders to participate in their equity, even if this could be a much less expensive way of raising capital.

But the current bull run has shown that the shareholding culture has taken root - there must now tens of thousands of individual shareholders - and that some Maltese savers are savvy enough to know when to buy and when to sell. And it is good to see that an increasing number of savers are now relying on stockbrokers and financial institutions for advice, as they should.

Certainly, shareholders of the former Mid-Med Bank and those who bought HSBC Bank Malta shares since its takeover by the latter have no reason to rue their investment. Original shareholders have seen their investment grow by more than twenty-fold since Mid-Med shares were first floated in the early Nineties.

What's more, the dividends paid by the bank have more than kept pace with the shares' appreciation. Last Thursday HSBC announced that shareholders would be receiving 19c1 gross per share and a special dividend of 21c1 per share, for a total of 40c2. Similar generous dividends have been paid in recent years, meaning that original shareholders have more than recouped their investment. This on top of a one-for-one share issue last year, and a three-for-one share issue announced for next April.

Besides, although the Mid-Med sale to HSBC was roundly criticised as the equivalent of "selling off the family silver", the fact is that this year alone HSBC Malta will be paying the government Lm12.6 million in taxes on its record profit of Lm36.7 million. Those Lm12.6 million compare well with the entire profits made by Mid-Med when the bank was 100 per cent government-owned.

But it is not only HSBC which is doing well; other banks have been performing excellently - Bank of Valletta (which has just unveiled a spanking new centre in St Venera) is registering higher profits every year, as are the other two local banks, Lombard Bank Malta, and the as yet unlisted APS Bank.

The banks' performance is surely indicative of a basically healthy economy and of the island's existing potential for further economic growth.