Market physiology or psychology?

A media report published last Tuesday about Monday's trading on the Malta Stock Exchange referred to Bank of Valletta plc's (BOV) and HSBC Bank Malta plc's (HSB) prices dropping below important "physiological" levels. We have no doubt that some gremlin got into the printing works. Of course we understood that the intended reference was to the market's psychological support level, i.e. the mental perception governing investors' reaction to market activity.

We did double check with a doctor client who enlightened us about psychophysiology, "the study" he said "of the relationship between psychological and physiological phenomena". Since the latter, i.e. physiological, can apply to the function of body parts, we couldn't help sniggering about the possible mess caused by the market's (physiological) incontinence!

How psychology affects the market is something that we came across in Denver, while attending the Million Dollar Round Table (MDRT) annual meeting earlier this month: "The aggregate emotion of demand for equities can shift within the bandwidth of our human emotion very quickly and freely, in just the same way that tempers can flare, or a movie can suddenly make you cry or laugh. In our super-connected world, people can become worked up and decide to buy or sell, and within moments complete a transaction.

"If their eagerness waxes or wanes, they can virtually instantaneously act in massive volume. They can completely reverse course within hours, days, or months if they are so inclined - emotionally. Demand can shift fast, but only as far as people can become emotionally eager - or uneager. Just think how emotion shifted in the hours after 9/11. Hence, demand has a tremendously powerful effect on pricing in the short term because it can shift so fast."

So how does this market analogy to human psychology relate to investors' perception of the current pricing of Malta's listed equities? When does the mood shift happen that will make the market "reach new heights" - to end with the theme of MDRT's 2007 annual meeting?

It certainly did not start last Wednesday, as spring rolled into summer. Any heat was only to be seen on the thermometer's 35°. It certainly was not on the MSE's equity turnover figures - which totalled Lm599,906 - or the MSE Index's 4,830.137 close, still 0.9% below its 2006 close.

BOV opened the week where it had left off the previous Friday at Lm3.60, dropping two cents by the end of Monday's session to close at Lm3.58. Tuesday's 4,512 shares saw BOV dip to an intra-day low of Lm3.57, but recovering to close unchanged at Lm3.58. It maintained this price on Wednesday closing just a mil higher at Lm3.581. The trend changed on Thursday as BOV's opening trade was up at Lm3.599, progressing to Lm3.62, Lm3.63 and closing at Lm3.64.

Activity was muted on Friday, as 1,557 shares were traded in the Lm3.637-Lm3.64 price range, closing at the latter price, for BOV to register a week-on-week gain of 1.11 per cent. A week's total of 22,735 shares were traded for a turnover value of Lm81,740. At the end of the week total bids for 2,000 shares were at Lm3.61, whereas offers of 10,982 shares started at Lm3.64. On Tuesday, BOV announced that the board has re-appointed Tonio Depasquale as chief executive officer until November 30, 2009.

HSB ping-ponged between the Lm1.891 and Lm1.90 on Monday, closing the session a mil lower than the previous Friday's close, at Lm1.899. It held onto this price for Tuesday's open before giving in to selling pressure as the price eased back to a Lm1.88 close. All shares on Wednesday were traded at this price. The mood swing also hit HSB as Thursday saw an opening price of Lm1.885, before advancing steadily to a Lm1.90 close.

It started off at this price on Friday and lost a cent by the end of the session to Lm1.89. A total of 100,950 shares changed hands during the week for a turnover value of Lm190,689, with the price dropping 0.53 per cent for the week. At the end of trading, bids for 2,000 shares were at Lm1.892, while the best offer for 235 shares stood at Lm1.90.

Maltacom plc's (MLC) sole 5,000-share deal on Monday was struck at Lm1.41. MLC, like HSB, was also hit by selling pressure on Tuesday as the price dropped to Lm1.40 with over 15,000 shares traded. Activity was similarly vibrant on Wednesday as more than 31,000 shares changed hands, all trading at Lm1.40 with the exception of a 50-share deal transacted at Lm1.39. MLC closed the session at Lm1.401. It retained this level on Thursday, closing an irrelevant mil lower at Lm1.40. All the deals on Friday were struck at Lm1.41 for MLC to end the week unchanged. Turnover for the week totalled 74,052 shares with a total value of Lm103,803. At the end of trading, best bids totalled 1,000 shares at Lm1.402, with a supply of 2,300 shares at Lm1.41.

Malta International Airport plc traded on Monday in a narrow range of Lm1.335 and Lm1.34, closing the session at the lower price. It dipped further on Thursday to a new 2007 low of Lm1.33 as all 12,000 shares traded at this price, which was maintained till the close through Friday's session. This week, 29,500 shares were traded for a turnover by value of Lm39,320, the price suffering from a week-on-week drop of 1.48%. At the end of the session, best bids were for 2,450 shares at Lm1.31, while offers for 8,050 shares started at Lm1.38.

International Hotel Investment plc started on Monday at €1.051, dropped to an intra-day low of €1.035 on Tuesday but recovered by the end of the session to close the day and the week unchanged at €1.05, on a turnover of 16,683 shares.

GlobalCapital plc's (GCL) sole deal of 1,000 shares on Monday was struck at the unchanged price of Lm1.80. It was flat for Wednesday's first deal before advancing 6c to close the day at Lm1.86. The positive vibes continued on Thursday as the price leaped to a Lm1.90 close with over 16,000 shares changing hands. It regained further momentum on Friday as the price climbed to a Lm1.915 close for GCL to claim the week's best performer spot with a gain of 6.4 per cent.

Fimbank plc (FIM) started its trading week on Wednesday as 63,921 shares changed hands with the price remaining flat at US$1.90. It maintained this price on Thursday's sole deal of 540 shares. On Wednesday, FIM announced that the board will be meeting on August 23 to consider and approve the half-yearly financial report for the six-month period ending June 30, and to consider the payment of an interim dividend, if any.

Middlesea Insurance plc (MSI) wangled the week's wooden spoon as it continued downwards, collapsing 5c on Monday on one deal of just 250 shares, closing at Lm1.72. It was unusually busy on Tuesday with 8,956 shares changing hands as the price shed a further 2c to close at Lm1.70, another 2007 low. Wednesday only saw a minute 28-share deal - the week's last - completed at Lm1.701, for MSI to close the week 3.9 per cent down. On Tuesday MSI announced that an extraordinary resolution will be presented at the general meeting to be held next Thursday. This will authorise the company to acquire a maximum of 2.5 million (10 per cent) of its own ordinary shares. This authorisation will expire on the earlier of the next annual general meeting or December 28, 2008. The consideration which the company is authorised to pay shall not be less than 95c per share and not more than Lm2.85 per share.

Simonds Farsons Cisk plc (SFC) held on to its 2007 closing high on Monday and Tuesday as it traded flat at Lm1. Thursday saw the price climb to a fresh intra-day high of Lm1.01 in the first deal. Selling pressure pushed the price down, albeit to a 2007 closing high of Lm1.001, for SFC to register a minimal gain of 0.1 per cent with a total of 16,058 shares traded this week.

Plaza Centres plc (PZC) traded on Tuesday after six weeks' absence as 1,000 shares traded a cent lower than the previous close at 69c. This is a new 2007 low as PZC registered a drop of 1.43%.

Medserv plc only dealt on Wednesday with 1,050 shares traded at the unchanged price of Lm1.60.

Grand Harbour Marina plc (GHM) did not trade this week. However, a special trade was posted on the MSE last Friday through which Camper & Nicholsons Marina Investments Ltd (CNMI) purchased a total of seven million shares at 56c each for a total consideration of Lm3.92 million, thereby acquiring 70% of GHM ordinary share capital. Although CNMI is now obliged to make a mandatory bid to acquire the remaining three million publicly listed GHM shares, it confirmed that it will not be seeking to de-list the company and, that it welcomed retail shareholders to remain. CNMI's mandatory bid price offer will be set at 74c5 per share.

In the Government Bond market, turnover by value reached Lm6.6 million with 18 issues traded. In the corporate bond market there were 45 deals for a total turnover value of Lm73,328. Turnover value in the Treasury Bill market totalled Lm1.4 million.

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