Stock Market report

Psychic sensibilities or parochial paralysis?

"...HSBC extends losing streak on US home loan falls... Stocks in US fall on concern over home loan defaults..." These were just a couple of readings taken off a Bloomberg screen, at random, on Friday morning.

The jitters that struck international markets on Tuesday, February 27, reappeared eerily on the scene last Tuesday. In the intervening two weeks, more sub-prime mortgage lenders in the US faced not only major hikes in default rates on existing loans, but also a fall in demand for new ones.

What exactly is the role of sub-prime mortgage lenders? Very briefly, they prosper in low interest rate environments, by lending money to virtually anyone who can fog up a mirror. They do this at puffed up interest rates, even advancing the full cost of the property - irrespective of the borrower's credit standing.

This puts Ben Bernanke, Alan Greenspan's successor at the Federal Reserve, between a rock and a hard place for next Wednesday's decision on US interest rates. What should he do? Increase rates and hammer the housing market further? Or reduce them and see the dollar go south and the inflation rate in a diametrically opposite direction?

If we now switch from the global to the parochial, how relevant is the foregoing to the local market? Malta is nowhere near the 40% increase in US foreclosures last year. And, historically, the rate of default on house loans is comparatively insignificant.

But are not local banks now lending on a virtually lifetime basis? Now, US interest rates trebled from 1.75% in September 2004 to 5.25% last June - that is less than two years. It has taken a full nine-month gestation period for that trebling to start taking its toll.

In a few months' time, Maltese interest rates will be set by a Frenchman in Germany. We will by then have turned full circle from the parochial to the global. To a place, the European Central Bank (ECB), where interest rates have increased a full 50%, from 2.5% to 3.75%, in the past 12 months alone.

And market expectations are for the euro interest rate to hit 4% later this year. So, as we return to our parish pump proceedings at our local stock exchange, does it not make one wonder about the psychic sensibilities of Maltese investors?

In a tacit week, shares were hemmed into narrow trade ranges, providing little excitement. Of the 14 listed, tradable equities, three did not trade and three ended flat; five closed in negative territory and only three made it to the plus side of the trading board.

The best performer was Middlesea Insurance plc (MSI), up by 1.5%, while Grand Harbour Marina plc (GHM) was the week's worst with a 2.8% drop. The MSE Index closed at 4,826.54, down 0.389% on the week.

Bank of Valletta plc (BOV) started the week where it left off at Lm3.60, slipping minimally on Tuesday to close at Lm3.595. Wednesday saw further easing as BOV closed at a 2007 low of Lm3.58.

This level was maintained on Thursday, with a handful of deals executed at an intra-day low of Lm3.579. A near repeat took place on Friday, except that the low was at Lm3.578. BOV closed the day and the week at Lm3.58 for a loss of 0.6%.

The is a full 8c above its twice tested Lm3.50 resistance level, hit on August 28 and November 24 last year, after the one-for-one bonus issue in January, 2006.

A total of 21,534 shares were traded for a turnover value of Lm77,261 - the week's third highest. At the end of the week total bids for 403 shares were at Lm3.552, and offers of 1,380 shares started at Lm3.58.

HSBC Bank Malta plc (HSB) set out on a stable footing on Monday at Lm1.91, closing at Lm1.915, on a muted turnover of 7,236 shares. While activity on Tuesday more than quadrupled, the price lost ground, falling from a Lm1.915 open to a Lm1.90 close.

Wednesday saw HSB open slightly lower at Lm1.896 to close unchanged at Lm1.90. Thursday's trading was conducted in a similar vein, again closing at Lm1.90. Friday, the week's quietest session with turnover of only 6,650 shares, saw all deals except the first traded at Lm1.90 for HSB to end the week almost on par, percentage wise, with BOV - 0.5% lower.

The week's turnover of 74,974 shares for a value of Lm142,606 still accounted for the largest chunk of total equity turnover by value; however, this was a comparatively more modest 32% of the total. At the end of trading, bids for 1,000 shares were at Lm1.893, and the best offer for 1,412 shares stood at Lm1.90.

Maltacom plc (MLC)'s turnover for the week totalled 37,957 shares in 27 deals with a total value of Lm52,844. It set out practically unchanged on Monday, when in thin trade the first deal was effected at Lm1.412 and the second, and last for the day, at Lm1.411.

Tuesday's substantially busier session, with a turnover of 17,148 shares, saw the price sink to Lm1.40; after trading at this level during Wednesday's slow session, the final deal was struck at Lm1.399. It dipped minimally lower to Lm1.397 on Thursday and started out Friday at 19-month low of Lm1.37.

The final deal, although off the day's dismal lows, was still struck below the Lm1.40 level at Lm1.396 for MLC to end the week 1% lower. At the end of trading, best bids totalled 400 shares at Lm1.351, with a supply of 10,000 shares at Lm1.398.

Malta International Airport plc (MIA)'s token presence last week saw just a thousand shares traded. All trades took place on Monday, with the first deal for 200 shares struck 1c lower at Lm1.37, and the second and final deal for 800 shares was negotiated at Lm1.39.

Despite the low turnover, MIA still managed a 0.7% gain on the week. At the end of Friday's session, best bids were for 5,000 shares at Lm1.35 and offers for 1,000 shares started at Lm1.38.

FIMBank plc (FIM) started the week constant at $1.875. It traded again on Wednesday, advancing to $1.88, and was back at US$1.875 on Thursday. It did not trade on Friday to close the week unchanged.

For the second week running, FIM's equity turnover by value was the second highest - although substantially lower than the previous week's - at Lm95,056. On Monday FIM announced that the attribution price for calculating the scrip dividend will be $1.55.

International Hotel Investments plc (IHI) traded on Monday slightly lower at €1.16, climbing up to the €1.17 mark on Tuesday. It did not trade on Wednesday but was very active on Thursday with 127,750 shares traded between €1.169 and €1.17, again closing at this price.

IHI did not trade on Friday, ending the week 0.4% ahead. Total activity for the week amounted to 156,185 shares for a value of Lm70,803.

MSI traded unchanged at Lm1.95 on Monday, gaining 3c to Lm1.98 on Wednesday, thus ending the week 1.5% up. Turnover however was a scant 942 shares worth Lm1,857.

Simonds Farsons Cisk plc was static, trading at 82c on Monday and Wednesday. Plaza Centres plc was equally flat at 71c in the week's only deal for 800 shares on Monday - the day it announced a Board meeting scheduled for Tuesday which will consider and approve the final audited accounts for the financial year ended December 31, 2006, and the declaration of a final dividend to be recommended to the AGM.

Lombard Bank plc lost 5c, or 1%, to Lm4.95 in the week's solitary deal for a trivial 300 shares. The week's largest loss was suffered by GHM, down 2.8% to its IPO price of 70c in a single deal for 1,100 shares on Friday. There were no shows from GlobalCapital plc, Medserv plc and Datatrak plc.

In the Government bond market turnover by value reached Lm996,905 spread over 16 issues. In the corporate bond market activity picked up with 40 deals completed for a total turnover value of Lm172,958.

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