Financial news

Investor sentiment remained weak during yesterday's trading session at the Malta Stock Exchange, notwithstanding the positive news relating to foreign interest in locally listed equities. As a result the index shed 0.17 per cent to close at 4,827 points.

Buying activity continued in Lombard Bank with all five deals for a total of 3,800 shares being struck at the Lm5 level. All supply at this level has now dried up with the next best offer remaining on the board at Lm5.09 with total supply of 1,380 shares. Subject to regulatory approval, Marfin Popular Bank plc of Cyprus will be acquiring a stake of about 43 per cent in the third largest local bank for a consideration of €48.3 million which equates to Lm5.58 per share.

FIMBank gave back 0.5 per cent following Tuesday's jump in price, as 31,330 shares were transacted across 13 trades. The equity closed the day at the $1.98 level. The shares are still trading with attached rights to subscribe for new shares on the basis of five for every 19 held at the price of $1.10.

Bank of Valletta stumbled back to the Lm3.58 level as 12,950 shares were swapped across five transactions. Investors have adopted a cautious approach with the equity which will report its full year earnings on October 26.

Elsewhere in the market, 5,130 shares of HSBC Bank Malta were swapped without affecting their previous closing price of Lm1.90.

GlobalCapital was the day's worst performer as the diversified financial services and property group dropped 7c or 3.7 per cent as 1,000 shares were sold across two transactions, squeezing the price down to Lm1.80.

Middlesea Insurance was the only equity to close the day in positive territory. Buying activity for 4,614 shares cleared all supply up to the Lm1.59,5 level which represents a 0c5 or 0.3 per cent premium to its previous traded price.

UK economic review

Last week the pre-Budget report grabbed the headlines in the UK. The net effect was tax-raising, however, spending is expected to rise at a 2.1 per cent real annual pace. Education spending, in particular, will increase by 2.8 per cent. Still, all government departments face significantly tighter budgets than they have in the past five years. As a result of this fiscal tightening, the effects of increasing interest rates and the recent credit crunch, the Treasury has revised downwards its growth forecast for 2008.

Meanwhile, retail sales figures unexpectedly increased by five per cent year on year overall. This seems odd given the current tight monetary stance and slowing economic growth and may be a one-off, resulting from exceptionally good weather conditions this summer.

Consumer prices remained subdued in September. Core inflation fell from 1.8 per cent to 1.5 per cent. The fact that inflation remains below its target makes the hurdle for a rate cut lower than it would otherwise be. Markets expect a rate cut sometime in 2008. A weaker than expected economy would bring this date forward.

Economic growth is expected to slow in 2008, driven by weaker consumption as lagged responses to monetary tightening policy kick in following the credit crunch, softer asset prices and a more subdued global economic outlook. Still the economy is proving to be resilient and may surprise further.

This article was compiled by Bank of Valletta plc, which is licensed to conduct investment services business by the MFSA. Bonds and shares may be purchased and sold from any BOV branch. Further details may be obtained by contacting us on tel.: 21312020 or email: customercare@bov.com.