Global equities up as optimism grows

Global equity markets continued to rise after German Chancellor Angela Merkel said the European Central Bank’s insistence to help indebted governments cut borrowing costs was in line with her priorities. The news raised hopes across markets that European governments might offer immediate support before a meeting between the leaders of Germany and France next week.

Although for the time being markets remain optimistic about the future of the eurozone, last week’s gains were much more contained. The Stoxx Europe 600, which tracks the largest 600 European companies by capitalisation, rose for the 11th week in succession while Spain’s 10-year bond yield last week reached the lowest level since July 5.

Furthermore, positive US economic data was released which encouraged more equity investments. The US consumer sentiment index rose to its highest level since May while data released early in the week showed retail sales improved more than analysts expected.

Applications for building permits rose to over five-year highs in August while production in July improved more than forecast, adding new signs that the world’s largest economy is moving out of the crisis at a faster pace than other developed economies.

Meanwhile in the currency markets, the euro initially found little upward momemtum as Europe prepared to announce preliminary economic growth figures for the year’s second quarter. However, German economic growth slowed less than economists had forecast, while France’s GDP marginally beat the forecast to give the euro a lift against the safer US Dollar.

The Malta Stock Exchange fell for the third week running, ending the week 1.2 per cent down at 3,027.783 points and over two per cent lower year-to-date. Due to this negative rally the local market has nearly given away all its gains in July, which was by far the best month for local equities this year.

Once again, last week’s fall occurred on a further drop in turnover. In fact, a total of 42 deals worth a mere €120,000 were executed. The two major banks were the most active, yet trading volume was nowhere near that traded during their busiest weeks, while insignificant value was traded in another seven equities.

On its first week of trading Malita Investments plc was the week’s best performer with a four per cent, or €0.02 gain as the equity’s price closed Friday’s session at €0.52. Only one deal of 5,000 shares was executed in the week’s final trading session.

In the banking sector, Bank of Valletta plc shares gained one per cent after the equity ended the week at €2.10. On Tuesday the bank’s share price also touched a weekly high of €2.14, but trading volume was not supportive and the price soon returned to its previous trading level. Turnover tumbled to €33,000, which was dealt over 13 deals.

HSBC Bank Malta plc closed another week lower, shedding near­ly two per cent, or €0.05, to close at €2.649, after trading at a weekly low of €2.60. Despite the positive results announced early this month investors remained unimpressed as the share price failed to break through the €2.90 level, a yearly high which was reached on July 30.

However, it can be argued that investors were anticipating positive financial statements, and so a good chunk of the positive news was already priced in during the rally throughout July. Last week, trading volume fell to 23,000 shares, down from 31,000 a week earlier. Since the beginning of the year HSBC is still up by nearly three per cent.

Lombard Bank plc shares lost 1.4 per cent or €0.03 to end the week at €2.15 after two thin trades of 950 shares were executed. The equity continues to lose ground on insignificant volume. Year-to-date the share price has shed over 20 per cent from its market capitalisation.

Maltapost plc shares lost another six per cent following an eight per cent drop the previous week. The share price fell on Friday after the company announced that considerable increase in direct mail costs related to developments in international tariffs regulated by the Universal Postal Union (UPU) adversely impacted the company’s international revenue streams. As a result, turnover figures are marginally lower than those for the same period last year and at the same time operating costs have risen considerably, thereby resulting in lower profitability levels on normal trading activity compared to the same period last year.

The directors believe the trend in the fall in profitability reported for the six months till March 31 will be reflected in the second half of the financial year.

Furthermore, the board believes this trend will continue, and may even accelerate, until the regulatory framework within which the company operates is definitively and adequately revised.

The equity closed the week at €0.77 after three deals worth €2,000 were recorded.

Simonds Farsons Cisk plc shares gained 1.5 per cent to end the week at €2.03, while Go plc shares closed flat at €1.02 after trading at a weekly low of €1. A total of €10,000 worth of shares was dealt across four transactions.

Meanwhile, International Hotel Investments plc closed the week 0.2 per cent down to just shy of €0.85.

A rather uneventful week for Plaza Centres plc left the equity’s price intact at €0.55. Two deals of 10,000 shares were recorded.

In the fixed income market, yields on local government bonds closed more or less off their recent highs, after the Central Bank of Malta adjusted bid prices lower as foreign equity markets continue to rise.

As investors become more optimistic about the future of the world economy, more money might be seen flowing into equities. As a result, safer government bonds will be expected to yield more during periods of growth expectations.

The 4.3% MGS 2022 closed at €102 and is now yielding 4.1 per cent. The long-dated 5.25% MGS 2030 lost 70 basis points to close at €103.69.

This article, which was 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 further information contact Atlas JMFS at 67/3, South Street, Valletta, or on Tel: 2122 4410 or e-mail jesmond.mizzi@atlasjmfs.com.