The declines are temporary, the advance is permanent

With half the year gone, we thought our readers would be more interested in the market's macro performance, rather than the micro movements of the four-day trading week ended last Thursday.

The current bear market, which has just completed 15 months, (March 28, 2006 - June 28, 2007) has seen the MSE Index drop 27.6%. The last major bear market started on January 24, 2000, and lasted a full 33 months, till October 30, 2002.

At what (we learned with hindsight) would be its half-way stage - the end of May 2001 - the index was already 40% down, The Times published an interview with our company, under a column called "The Country's Agenda". It was headed "How do you explain the fall in share prices?" We did not know then - and neither do we know today - when or at what level the market would bottom. However what we said six years ago, we stand by today:

"Markets move in cycles like all the other rhythms of life. Equities produce tremendous volatility, but are only a risk if you sell at the wrong time. Returns and volatility are two sides of the same coin and they are implicit in the deal. If you want the long term real returns of equities, then you must accept the short- to intermediate-term volatility..."

"There is only one thing you can know for sure - the only thing you need to know - about the equity market: the declines are temporary. The advance is permanent. This does not, in any way, mean that one should not be extremely careful as to when to move in and buy..."

"While wealth is created by investment performance, it is investors' behaviour that drives markets. It is markets that create temporary declines, but it is people who create losses. No panic, no sell; no sell, no loss."

Proof positive? In the ten years between June 30, 1997, and June 30, 2007 - the Index gained 355% - and that's tax free!

An analysis of the MSE Index's performance for the first half of each of the last ten years shows, as per the bar chart below, that in seven of these ten years the market produced a positive return. Of the three negative periods, this year's was easily the mildest drop at 1.32%.

However, over this year's first half, the only four equities to close in positive territory were definitely not major components of the Index.

From macro to micro: last week, only five equities closed in positive territory. GlobalCapital plc (GCL) was the clear-cut best performer, up a resounding 12.3% - excellent timing for its half-year results. The other positives were more contained - Middlesea Insurance plc (MSI) up 2.9%, Maltacom plc (MLC) ahead by 2.8%, Lombard Bank plc (LOM) by 1.9% and HSBC Bank Malta plc (HSB) a slender 0.5%. There were six losers, led by International Hotel Investments plc (IHI) down 4.8%.

Bank of Valletta plc (BOV) opened at Lm3.638. It immediately dropped to Lm3.62 and stayed at this level till the final deal, effected at Lm3.625. Tuesday's single trade for 137 shares maintained this price, while Wednesday saw BOV lower again, closing at Lm3.61. It continued decidedly south on Thursday as selling pressure rammed the price down from a Lm3.60 open to a 2007 closing low of Lm3.551. It thus ended the week 2.5% down on the previous Friday's close. Turnover totalled a modest 16,690 shares for a value of Lm59,970. At the end of trading, best bids totalled 2,000 shares at Lm3.552, while supply of 300 shares started at Lm3.57.

HSB opened the week a fraction higher at Lm1.892, rising to Lm1.90 in a generally quiet session. Tuesday was even quieter as the prices were reversed, opening at Lm1.90 and closing at Lm1.892. On Wednesday, five of the day's six deals were struck at Lm1.90, with the final one effected at Lm1.895, while all of Thursday's business was effected at Lm1.90. HSB thus closed the week ahead by a slim 0.5% on the week's turnover of 26,888 shares worth Lm50,986. At the end of trading, the best bid was for 1,750 shares at Lm1.895, while the best offer for 5,187 shares stood at Lm1.90.

MLC started out unchanged at Lm1.41 but closed slightly lower at Lm1.402 in a near no-show - just 345 shares. Volume picked up substantially on Tuesday as turnover increased to 27,950 shares traded at Lm1.40. On Wednesday, one sale order for 10,000 shares dragged the price down to Lm1.38. MLC was stable at Lm1.38 for the first few trades on Thursday, rose to Lm1.40, and after a 30-minute lull, one deal for 5,000 shares propped the price up to Lm1.45, for a welcome 2.8% gain on the week. Turnover for the week totalled 58,655 shares for a market value of Lm81,884. At the end of the session, the best bid was for 5,000 shares at Lm1.38 and the best offer for 1,150 shares at Lm1.449.

On Tuesday, MLC announced that further to the Malta Communications Authority's decision last September, imposing an administrative fine of Lm10,000 and a daily fine of Lm200, the Communications Appeals Board upheld MLC's appeal.

Malta International Airport plc first traded on Tuesday unchanged at Lm1.33 in one trade for 1,000 shares; it was stable at Lm1.33 for most of Wednesday's trading, stumbling to a 2007 low of Lm1.315 in the day's and the week's final deal. Turnover was a negligible 4,200 shares for a value of Lm5,583. At the end of the session, best bids were for 2,830 shares at Lm1.315 while offers for 2,500 shares started at Lm1.35.

IHI shed 2 euro cents to €1.03 on Monday on 6,115 shares. It only traded again on Thursday when selling pressure pulled the price down to €1 in a busy session with a turnover of just under 30,400 shares. The 5 euro cents drop translates into a 4.8% drop on the week.

Fimbank plc only traded on Thursday, opening a cent higher at US$1.91. It promptly retreated to $1.90 where the bulk of the day's 50,872 shares traded, closing the week unchanged.

GCL was stable at Lm1.915 in the first trade but raced ahead to Lm2, as one buy order for 6,500 shares pushed the price up to this level. It advanced further on Tuesday to close at Lm2.05, the level it also closed at on Wednesday. A flurry of activity on Thursday saw GCL trade in a wide price range starting at Lm2.048 up to its closing price of Lm2.15. Turnover for this small cap stock was very high at 62,900 shares with a turnover of Lm128,184 shares - more than the combined turnover for BOV and HSB.

MSI was off its year's low, springing up an encouraging 2.9% to Lm1.75 on Monday. It maintained this price on Tuesday but slipped a cent to Lm1.74 on Wednesday's only deal for 246 shares. It was back at Lm1.75 on Thursday, up 2.9% for the week.

LOM opened the week stable at Lm4.85, gaining 2c to Lm4.87. It continued higher on Tuesday, trading at Lm4.90 in one deal for 1,000 shares. Another 1,000 share deal on Thursday took the price up another 4c for LOM to close the week 1.9% higher on the week's turnover of 9,000 shares.

Simonds Farsons Cisk plc opened at Lm1.001 on Monday, shedding a minute 1 mil in the day's second and final deal. It traded lower on Tuesday down to 99c in the day's only deal for 634 shares, closing at the same price on Wednesday and Thursday, down 1.1% on the week.

Grand Harbour Marina plc traded after a fortnight's break. However, activity consisted of just one deal for 500 shares at 75c9 on Tuesday, 3.7% lower than its previous close.

In the Government Bond market, turnover by value reached Lm6.2 million with 18 issues traded. In the corporate bond market there were 17 deals for a total turnover value of Lm31,201. Turnover value in the Treasury Bill market totalled Lm150,752.

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