ECB slashes interest rate by 25 basis points

Following the EU Summit on June 28 global equity markets rallied on the final trading session of the second quarter. Initially, the upbeat momentum trailed in the opening session of last week. However, as the week progressed developments reminded investors that economic growth for 2012 might be well below the initial forecasted figures, that the European debt problems are not over yet and that the €100 billion promised to Spanish banks will be delayed until the Eurogroup meets on July 20.

As the optimistic outlook started to fade, investors preferred to stay on the side lines ahead of the European Central Bank and the Bank of England monetary policy announcements. As expected, last Thursday the ECB lowered its refinancing rate by 25 basis points to a record low of 0.75% while the deposit rate was also reduced to 0% by 0.25%.

Such measures intend to boost spending and in turn market confidence as savers are encouraged to spend more through lower deposit rates while banks are being encouraged to place money with other banks rather than with the ECB.

In the UK, BoE raised its target for bond purchases by £50 billion to £375 billion. As the news hit the wires, global equities tumbled erasing a large chunk of the previous gains while the euro tumbled. Last Friday the decline persisted as risky assets took a nose dive while yields on Spanish debt once again surpassed the 7%. In the US, jobs’ data issued last Friday was below economists’ forecast. This added further affliction as US Indices turned red while US Treasury yields declined as money poured into them.

Locally, following two weeks of declines, the Malta Stock Exchange Index returned to positive territory with a 0.5% gain. Last Friday the MSE ended the session at 3,036.163 points. Once again turnover declined, as 172,000 shares changed hands as eight equities were active.

Sentiment was generally negative, however, gains in HSBC Bank Malta plc in the final session were enough to outweigh the losses suffered by other equities. Lack of liquidity in a number of equities meant that their share price fell as sellers are forced to accept lower bids. This trend has been affecting the local market for quite a while now. However, as the summer season gets further underway, investors may possibly be faced by some bumpy sessions.

Simonds Farsons Cisk plc shares were a case in point. Last Monday the equity traded unchanged at €2.15 as three deals of 1,000 shares were executed. Last Friday one transaction of 5,500 shares slashed the share price lower by 7% to €2. Total value traded barely surpassed the €13,000 level. This compares negatively to the €45,000 traded a week earlier, over which the equity returned a positive 7.5%. Notwithstanding last week’s decline, since January SFC shares jumped by 11%.

GO plc shares lost 5.5% or €0.065 to close lower for the second week running, following a straight seven-week rally between mid-May and the third week of June. Trading volume increased to 32,550 shares, up from 2,500 shares traded a week earlier. The equity closed at €1.11, after having traded at a three-week low of €1.053 and a high of €1.17.

In the banking sector the two major banks, BoV and HSBC were the only traded equities. HSBC shares also finished the week as the only gainers with a 4% or €0.10 move to the upside. Up till Thursday, the equity seemed to be heading to a more modest gain as the share price only managed to move 0.8% higher during Thursday’s session while it closed flat the previous three sessions. However, last Friday the equity’s price soared by 3.2% to reach a 16-week high of €2.61and now at a year-to-date gain of 1.2%.

Meanwhile, BOV shares took another setback as the equity closed lower for the third week in a row. Last week the banking equity lost another 0.5% to end the session at €2.05 as 38 deals worth €0.1m were executed.

Likewise, International Hotel Investments plc shares edged minimally lower to end the week at €0.849 as €17,000 were dealt across nine deals. After reaching a yearly high of €0.90 in the final week of May and which it maintained throughout June, the hotels operator failed to break through this level and has for the last five sessions hovered in the €0.85 mark.

Last week happened to be the first trading week of the month of July and as it does every month Malta International Airport plc updated the market with the traffic results for the previous month. Passenger movements at MIA increased by 8.5% while aircraft movement grew by 4.7%.

The company also announced that passenger traffic for the first six months of 2012 increased by 1.6% to a record total of 1.6 million passenger movements, while aircraft movements declined by 2.8% over the same period of 2011. The share of MIA shed 1.7% or €0.03 as four deals of 6,000 shares were recorded.

Meanwhile, one deal of 2,000 MaltaPost plc shares reduced the equity’s price by 1.7% to €0.89, the lowest trading price for this year. On the other hand RS2 Software plc traded flat at €0.50 as two thin trades were recorded.

Last week, Malita Investments plc, a fully owned government entity which was set up to acquire, develop, manage and operate a portfolio of immovable assets, announced it will be issuing 20 million ordinary shares at a nominal value of €0.50 each to the public with a further over allotment of 10 million ordinary shares.

The government intends to retain at all times a shareholding of 70% in the company. During a press conference, Kenneth Farrugia, chairman of the board of directors, said the company’s business profile was such that the existing revenue streams were highly visible and quantifiable,given that they arose from long-term contractual agreements.

These contracts also provide for the periodic revision of the ground rent and rental income. The company’s cash outflows also carry a high degree of visibility. The company is planning to pay an interim and annual dividend every year.

In the Government Bond Market yields declined as the Central Bank of Malta revised bond prices higher following the 25 basis point rate cut by the ECB. A total of €17 million was dealt with the short-dated 6.35% MGS 2013 taking the lion’s share. Over €8.3 million was dealt in this issue. The 10-year bond gained almost 100 basis points while the yield on the 5.25% MGS 2030 now stands at 5% following a 0.24% gain.

This article, compiled by Jesmond Mizzi, managing director of Atlas JMFS Investment Services Ltd, does not intend to give investment advice and the contents therein should not be construed as such. Atlas JMFS is licensed to conduct investment services by the MFSA and a member firm of the Malta Stock Exchange. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. For more information contact Atlas JMFS at 67/3, South Street, Valletta, call 2122 4410 or e-mail jesmond.mizzi@atlasjmfs.com.