Euro adoption - Implications for Maltese investors
The total market capitalisation of the 20 largest stock exchanges in the EU, excluding the pure deposit (banking) markets, totals some €12 billion spread over some 10,100 listed companies.The investment flows through these companies reached some €3.2...
The total market capitalisation of the 20 largest stock exchanges in the EU, excluding the pure deposit (banking) markets, totals some €12 billion spread over some 10,100 listed companies.The investment flows through these companies reached some €3.2 billion in January this year.
The sheer size of the marketplace is awesome when compared to the market size and market movements we are used to. This is not to say that our market is not important, but it would be more accurate to say that, with the advent of the euro, the Maltese investor will have access to a substantially larger pool of investment opportunities.
While January 1, 2008 is an important one for Malta because it is the proposed target date for Malta's adoption of the euro, there are (at least) another two significant developments which also need to be considered in the context of the local investor.
The first is the introduction of Mifid, (Markets in Financial Instruments Directive) which will replace the Investment Services Directive. The new directive will focus on two main aims:
• creating a homogenous wholesale investment market in the EU via reductions of trade barriers and a resolute drive towards harmonisation of regulatory environment;
• creating a safer retail investment environment across the EU.
Mifid will bring a bigger focus onto the protection of the retail investor and will continue to enforce a level playing field in the investment arena. The second is Sepa (Single European Payments Area), which will continue to revolutionise the payments or "money flow" aspects of the financial markets.
While up to the end of this year a local payment in Malta means transferring money from Valletta to Mellieha, with effect from January 1, 2008, an EU local payment will mean transferring money from Valletta to Vienna, Frankfurt or Athens. This development will have significant implications on how banks and other financial institutions process money flows, be they in the form of credit cards, debit cards, bank to bank transfers or direct debits/credits.
Advantages for the Maltese investor
So what will the euro mean for the local investor? Here are some of the more positive aspects of joining the Eurozone:
(1) Access to a very large and well developed market will increase consumer choice and should assist in lowering transaction costs.
(2) Access to financial instruments which were previously unavailable in Maltese lira (e.g. derivative instruments).
(3) Direct participation in the economic prospects of the EU without incurring any exchange risks.
(4) Exposure to new developments described above such as improved pricing, through greater level playing fields (Mifid) and increased efficiencies and ease of payment through Sepa.
Disadvantages to the Maltese investor
With such large and complex markets, despite the regulatory protection, "information overload" will be an issue. Wading through the "voluminous" information will be a task in itself.
Dealing with an adviser or a product provider face to face has many benefits. Establishing a relationship over the internet is not impossible but better for "Execution Only" business rather that "Advisory" services.
Collective investment schemes (CISs)
Euro adoption also opens the way for some important opportunities for local investors in the area of collective investment schemes.
CISs were popularised in Malta in the latter half of the 1990s when the listing/ floatation of Malta Government Bonds and local equities were traded on the Malta Stock Exchange in a dematerialised manner, i.e. all transactions and records were electronic in nature.
Investors during the initial development of financial markets in Malta found CISs to be a useful vehicle to participate in the market without having to make the all-important decisions as to which securities to own, buy or sell.
Products investing in local securities quickly gained acceptance and popularity. The investor had access to the following broad types of vehicles:
• Sovereign Bond funds (Malta Government);
• Corporate Bond funds (local companies borrowing via the Local Stock Exchange);
• Local Equity and Foreign Equity (combination) funds.
Today there are some Lm570 million worth of investors' money in locally produced CISs.
Throughout the EU there are approximately €5 trillion worth of assets in CISs (not necessarily invested exclusively in the EU or in the euro). But what is significant is not only the matter of size but more the diversity of CISs that can be found and considered for investment needs. The choice within the various assets classes and currencies is truly immense.
A large liquid market plus the added benefits of no exchange risk in the investment currency (in our case the euro) can provide the local investor with some of the following typical examples:
Country specific Funds, e.g. a balanced fund (bonds & equities) investing in a specific country say Germany.
Industry Funds, e.g. combinations of different securities in one sector say banking and finance, pharmaceuticals, retailing, etc.
Single Asset class Funds, e.g. a property fund which includes investments either in direct property or in shares of companies which invest in direct property. Similarly there could be Global Bond Funds, US Equity, etc.
Specific Equity Funds, say large Cap exposures. A typical fund could invest exclusively in the shares of companies which are considered "blue chip", i.e. very large, well established companies. There are also Medium Cap and Small Cap type of Funds.
Regional Funds, i.e. a fund which invest say in emerging markets in the EU.
The combinations are practically endless and a selection process of what fund is appropriate and suitable for a particular investor should be made via a professional financial planning meeting with a person licensed by the Malta Financial Services Authority.
• Mr Scicluna is the head of Wealth Management at HSBC Bank Malta plc with overall responsibility for all investment and insurance product sales in HSBC Malta. The service proposition also includes Trust services, independent financial advice and sale of capital protected structured products.
http://www.hsbc.com.mt
The sheer size of the marketplace is awesome when compared to the market size and market movements we are used to. This is not to say that our market is not important, but it would be more accurate to say that, with the advent of the euro, the Maltese investor will have access to a substantially larger pool of investment opportunities.
While January 1, 2008 is an important one for Malta because it is the proposed target date for Malta's adoption of the euro, there are (at least) another two significant developments which also need to be considered in the context of the local investor.
The first is the introduction of Mifid, (Markets in Financial Instruments Directive) which will replace the Investment Services Directive. The new directive will focus on two main aims:
• creating a homogenous wholesale investment market in the EU via reductions of trade barriers and a resolute drive towards harmonisation of regulatory environment;
• creating a safer retail investment environment across the EU.
Mifid will bring a bigger focus onto the protection of the retail investor and will continue to enforce a level playing field in the investment arena. The second is Sepa (Single European Payments Area), which will continue to revolutionise the payments or "money flow" aspects of the financial markets.
While up to the end of this year a local payment in Malta means transferring money from Valletta to Mellieha, with effect from January 1, 2008, an EU local payment will mean transferring money from Valletta to Vienna, Frankfurt or Athens. This development will have significant implications on how banks and other financial institutions process money flows, be they in the form of credit cards, debit cards, bank to bank transfers or direct debits/credits.
Advantages for the Maltese investor
So what will the euro mean for the local investor? Here are some of the more positive aspects of joining the Eurozone:
(1) Access to a very large and well developed market will increase consumer choice and should assist in lowering transaction costs.
(2) Access to financial instruments which were previously unavailable in Maltese lira (e.g. derivative instruments).
(3) Direct participation in the economic prospects of the EU without incurring any exchange risks.
(4) Exposure to new developments described above such as improved pricing, through greater level playing fields (Mifid) and increased efficiencies and ease of payment through Sepa.
Disadvantages to the Maltese investor
With such large and complex markets, despite the regulatory protection, "information overload" will be an issue. Wading through the "voluminous" information will be a task in itself.
Dealing with an adviser or a product provider face to face has many benefits. Establishing a relationship over the internet is not impossible but better for "Execution Only" business rather that "Advisory" services.
Collective investment schemes (CISs)
Euro adoption also opens the way for some important opportunities for local investors in the area of collective investment schemes.
CISs were popularised in Malta in the latter half of the 1990s when the listing/ floatation of Malta Government Bonds and local equities were traded on the Malta Stock Exchange in a dematerialised manner, i.e. all transactions and records were electronic in nature.
Investors during the initial development of financial markets in Malta found CISs to be a useful vehicle to participate in the market without having to make the all-important decisions as to which securities to own, buy or sell.
Products investing in local securities quickly gained acceptance and popularity. The investor had access to the following broad types of vehicles:
• Sovereign Bond funds (Malta Government);
• Corporate Bond funds (local companies borrowing via the Local Stock Exchange);
• Local Equity and Foreign Equity (combination) funds.
Today there are some Lm570 million worth of investors' money in locally produced CISs.
Throughout the EU there are approximately €5 trillion worth of assets in CISs (not necessarily invested exclusively in the EU or in the euro). But what is significant is not only the matter of size but more the diversity of CISs that can be found and considered for investment needs. The choice within the various assets classes and currencies is truly immense.
A large liquid market plus the added benefits of no exchange risk in the investment currency (in our case the euro) can provide the local investor with some of the following typical examples:
Country specific Funds, e.g. a balanced fund (bonds & equities) investing in a specific country say Germany.
Industry Funds, e.g. combinations of different securities in one sector say banking and finance, pharmaceuticals, retailing, etc.
Single Asset class Funds, e.g. a property fund which includes investments either in direct property or in shares of companies which invest in direct property. Similarly there could be Global Bond Funds, US Equity, etc.
Specific Equity Funds, say large Cap exposures. A typical fund could invest exclusively in the shares of companies which are considered "blue chip", i.e. very large, well established companies. There are also Medium Cap and Small Cap type of Funds.
Regional Funds, i.e. a fund which invest say in emerging markets in the EU.
The combinations are practically endless and a selection process of what fund is appropriate and suitable for a particular investor should be made via a professional financial planning meeting with a person licensed by the Malta Financial Services Authority.
• Mr Scicluna is the head of Wealth Management at HSBC Bank Malta plc with overall responsibility for all investment and insurance product sales in HSBC Malta. The service proposition also includes Trust services, independent financial advice and sale of capital protected structured products.
http://www.hsbc.com.mt