The foresight saga

On May 10, 2006, Ben Bernanke chaired his second meeting of the US Federal Reserve and increased US interest rates by 25 basis points to 5%. The next day we moved clients' overseas equity holdings into cash - just in time to avoid the correction that followed in world equity markets. It was the first substantial correction in the then three-year-old bull market.

In spite of the only US interest rate increase since then - to 5.25% on June 29 - international equity markets not only regained lost ground in a few months, but have also since powered ahead, with the Dow Jones hitting an all-time high last February 20.

In Europe, as we write, the FTSE is just 7.5% from its own all-time high of 6,930.20 on December 30, 1999. The DAX is 12% from its March 7, 2000 high of 8,064.97, while the CAC 40 index still has to gain a further 20% to reach its own all-time high of 6,922.33 on September 4, 2000. Interest rates scenarios see both the European Central Bank and the Bank of England increasing rates by 25 basis points within the next two months - to 4% and 5.5% respectively.

Will the next Fed meeting on May 9 spark the oft repeated reference to a market recession? Well, erstwhile talk of an interest rate cut has now veered to expectations of another 25 basis point increase. This explains the somewhat heightened investor alarm.

Besides the effect of such an increase on the US housing market, following the sub-prime saga, a slow-down in economic growth seems to be very much on the cards. On the other hand, especially in the UK, the price-earnings ratio on the FTSE is in the relatively attractive range of about 13.

By way of comparison to the Maltese market, the MSE index ended last Friday at 4,831.722, which is 37.5% from its all-time high, only achieved 13 and a half months ago.

Trading was still subdued in the post-Easter week with equity turnover by value just topping the Lm400,000 mark. The breath of fresh air came from Maltacom plc (MLC) and Fimbank plc (FIM) with both equities advancing to their 2007 highs of Lm1.50 and US$1.95 respectively. Small cap Simonds Farsons Cisk (SFC) joined in, also hitting a 2007 high of 85c.

This was however counterbalanced by four equities hitting 2007 lows: Bank of Valletta plc (BOV) fell to Lm3.56, Lombard Bank plc (LOM) to Lm4.92 and both Middlesea Insurance plc (MSI) and Globalcapital plc (GCL) to Lm1.90. Price movements however were not dramatic as witnessed by the MSE Index, which ended the week close to flat, a mere 0.3% up.

BOV started off practically unchanged, trading at Lm3.598 and Lm3.599 on Monday. During Tuesday's somnolent session there were just two deals totalling 1,660 shares, the first at Lm3.58 and the second at Lm3.57. Wednesday was still quiet with the price stuck at Lm3.57 as was Thursday. Friday saw BOV dip to a 2007 low of Lm3.56 with all the day's activity totalling 1,683 shares taking place at this level. The equity ended the week 1.1% down.

Total volume for the week was fairly low with turnover of 17,521 shares for a market value of Lm62,813. At the end of the week, total bids for 2,440 shares were at Lm3.55, whereas offers of 6,500 shares started at Lm3.60.

HSBC Bank Malta plc (HSB) gained a cent on Monday, opening and closing at Lm1.88. It slid back mildly from Lm1.878 to Lm1.87 on Tuesday, rallying up to Lm1.90 by Wednesday's close. This was short-lived as HSB was back down to Lm1.881 by Thursday's open, ending the day at Lm1.87. Friday's only three deals were all carried out at Lm1.89 for HSB to end the week a slim 1% ahead.

Total turnover for the week amounted to 57,722 shares for a value of Lm108,275.

At the end of trading, bids for 530 shares were at Lm1.885, while the best offer for 250 shares stood at Lm1.89.

MLC continued to build on the previous week's progress opening unchanged at Lm1.47 and progressing to Lm1.48. It was stable at this level throughout all of Tuesday. It picked up momentum on Wednesday, rising to Lm1.49 and Lm1.50 - a 2007 high and a level last seen four months ago, on December 14. On Thursday, with the exception of a handful of deals at Lm1.499 early on in the session, MLC traded solidly at Lm1.50 while Friday saw a single deal for 1,500 shares matched at Lm1.495, to close the week 1.7% up.

Turnover continues to be brisk with 90,569 shares transacted for a market value of Lm134,709. MLC in fact accounted for 33.6% of the week's equity turnover by value.

It's been a very long time since MLC topped the turnover tables!

At the end of trading, best bids totalled 777 shares at Lm1.49, with a supply of 10,414 shares at Lm1.50.

Malta International Airport plc (MIA) started the week stable at Lm1.36 on slow turnover of 700 shares; a further 700 shares changed hands at Lm1.365 on Tuesday. It traded again on Thursday starting out at this price and falling a minuscule 3 mils to Lm1.362 for the final deal. Friday's trading was also carried out at this level to end the week barely ahead, up by 0.15%

At the end of the session, best bids were 340 for shares at Lm1.362 while offers for 800 shares started at Lm1.38.

FIM first traded on Wednesday, starting flat at $1.92 and closing a cent up. On Thursday it headed higher, rising from $1.93 to $1.945 pushing ahead to a 2007 high of $1.95 by Friday's close. It gained 1.6% on the week, to earn second best performer status.

A company announcement issued on Friday confirmed that at the AGM held on April 12 all the Ordinary and Extraordinary Resolutions proposed were approved.

SFC also advanced to a 2005 high of 85c in the week's single trade for 650 shares on Thursday.

LOM lost 5c to Lm4.92 in Wednesday's single deal for 362 shares; on Thursday, it traded again at the same price on a miserly turnover of 76 shares to end the week 1% lower.

MSI fell to a new 2007 low of Lm1.90 on Wednesday on turnover of 2,115 shares. A further 250 shares were traded on Friday at this price for MSI to end the week a weak 0.2% lower. On Friday, the company announced that the board will meet on Thursday April 26 to review the financial statements for the year ended December 31, 2006 and to recommend a dividend.

GCL only traded on Thursday when it sagged 2% falling to Lm1.91 on turnover of 1,075 shares.

Datatrak plc (DTK) lost 4.3% in the week's only deal on Friday when 1,424 shares changed hands at 27c. On Tuesday, DTK announced that the board will meet on Tuesday, April 24, to discuss and approve the financial statements for the period ended December 31, 2006.

In the Government bond market turnover by value reached Lm534,320, with 14 issues being traded. The corporate bond market was fairly active with 30 deals completed for a total turnover value of Lm139,705.

In the Treasury Bill market, Lm81,000 worth of stock was traded for a value of Lm80,506.

P.S.: With the GAP bond issue expected to close successfully between tomorrow and Wednesday, investors can apply for two new Malta Government Stock issues from tomorrow week (April 23). Each issue is for Lm10 million with an overallotment, per issue, of a further Lm10 million. Both are fungible issues, i.e., to be rolled into existing, listed stocks.

The 5.7% MGS 2012 (iii) is priced at Lm105.95, giving a gross redemption yield of 4.45%, while the 5.1% MGS 2014 (iii) is priced at Lm103.64 giving a gross redemption yield of 4.5%. Applications close on April 26 or earlier at the Accountant General's discretion.

Financial Planning Services Limited is licensed by the MFSA to provide investment services, including stockbroking (IS/3608). The company is involved in acting as sponsoring stockbroker and corporate stockbroker. The directors or related parties, including the company, and their clients, are likely to have an interest in securities mentioned.