US and European equities continue to rally

The first week of August provided further signs that the global economy could be turning from recession to recovery. The US labour market shed much less jobs in July than had been expected while in Germany, exports in June surged by seven per cent.

On Friday in New York, the S and P 500 rallied firmly to above 1,000 as it notched a weekly gain of 2.3 per cent. The pan-European FTSE Eurofirst 300 index rose 2.3 per cent to a nine-month high as it advanced for a fourth successive week. Similarly the FTSE 100 in London gained another 2.69 per cent, ending the week at its highest level this year, while the Nikkei 225 in Japan rose 0.5 per cent on the week to a 10-month peak.

But equities underperformed, weighed down by losses in China and India. Chinese stocks suffered their worst week for five months after a strong performance in previous months.

This week's trading on the local stock exchange nullified all the gains achieved in the previous week, with the index ending even lower following a bout of heavy selling, particularly in the largest capitalised listed companies. In particular, downward price movements in HSBC plc and IHI plc shares were a heavy drag on the index, which lost 5.77% and ended Friday's session at 3,048.44.

This week's sell-off plunged the index back into negative territory year to date. Volume traded was also much lighter than in the previous couple of weeks with a total of 161,937 shares being negotiated in 123 deals. Eleven equities saw their shares being traded with only one registering an increase in value. Five of the remaining equities remained unchanged while the other five succumbed to selling pressure.

Similar to previous weeks, the focus of this week's trading was mainly on HSBC Bank Malta plc shares with resultant heavy volatility in its price. This equity snapped its winning streak, selling off in a significant manner as the week progressed. The price of this equity ranged from a high of €2.99 early in the week to a low of €2.62, at which it closed, a drastic decline of 12.08%. Shares traded amounted to 47,618, spread over 42 deals. Losses in this equity's share price gained momentum from Wednesday's trading session onwards as investors chose to take profits from the previous weeks' sudden climb.

The bulk of the remaining trading occurred in Bank of Valletta plc shares, which saw 50,972 equities change hands in 44 deals spread evenly throughout the week. This equity was also hit by sellers, yet to a smaller degree. The price volatility of this equity was noticeably more limited than that of its counterpart, with week-on-week losses reaching 'only' 3.30%. The price of this equity ranged between €3.001 and €2.85, yet closed the week at €2.90. The smaller weekly decline has helped maintain this equity above its end of year 2008 closing price, surpassing HSBC plc which has now dropped back into the red.

As has been the case in recent weeks, GO plc has continued to trade out of sync with the rest of the local market, recording a positive performance of nearly 2.30%. The share price did however see some fluctuation in mid-week as sellers dragged the price down to €1.78 from the week's high of €1.80. Nevertheless, a slight improvement in Friday's session lifted the price to €1.79. A total of 29,770 shares were traded in 16 deals, with the bulk of this trading occurring mid-week, sustaining the upward move.

This week saw International Hotel Investments plc release the group's half yearly report. In a statement accompanying it, the company stated that the adverse effects of the financial crises that started to be felt in the second semester of 2008 have spilled over into this year, with the hospitality industry suffering the effects of the global recession. As a consequence, the group registered a drop in turnover of 20%, and a drop in its operating income of €6.82 million when compared to the corresponding period last year. The group reported an operating profit after depreciation of €4.18 million but registered a loss before tax of €1.43m compared to a profit of €6.01m in 2008.

Upon the release of this information the share price of this stock drifted lower by 6.45%, ending the week at €0.841. Over the past three months the price has been fairly volatile, oscillating between €0.80 and €1 as uncertainty persists over the recovery of global markets upon which this company is so dependant.

A single deal of 10,000 Plaza Centres plc shares saw the price of this equity move slightly downwards by 0.06%, ending the week at €1.649. Similarly Middlesea Insurance plc gave up some of its value, ending the week at €1.759 or 0.06% lower. This company announced that its board of directors is scheduled to meet on August 25 to consider and approve the financial statements for the half-year ended June 30.

The non-movers of this week were Lombard Bank plc, FIMBank plc, Malta International Airport plc, Simonds Farsons Cisk plc and Maltapost plc. Volume traded in these equities was generally very light with sporadic deals spread out, yet failing to move prices in any direction.

The lion's share of the total local Government Stocks traded during this week took place in the 5.7% 2012 issue with 7.8 million nominal stocks traded in 8 deals. In total, a value of €9.6 million was traded this week spread over 28 transactions. Most of these deals saw prices continue their slow decline as yields improved to match their European benchmarks.

On the other hand, corporate bonds' price remained fairly flat as some gained value while others pared their gains. A total of 903,527 corporate bonds were traded in 97 deals. Trading in the Treasury Bills market amounted to €4.76 million.

This article, which was compiled by Jesmond Mizzi, managing director of Jesmond Mizzi Financial Services Limited (JMFS), does not intend to give investment advice and the contents therein should not be construed as such. JMFS is licensed to conduct investment services by the MFSA. The directors or related parties, including the company and their clients, are likely to have an interest in securities mentioned in this article. For further information contact JMFS at 67/3, South Street, Valletta, call 2122 4410 or e-mail jmizzi@jmfs.net.