Equities rally on Federal stimulus

Last week’s rally in the foreign equity markets was a mirror image of what happened the previous week. Investors eagerly expected the meeting of the US Federal Reserve which was held on Wednesday and Thursday.

Prior to the meeting markets remained mixed but skewed to the upside as investors anticipated some form of stimulus measures. Investors’ expectations of more measures to stimulate growth or quantitative easing got better after weekly jobless claims increased, hence prompting policy makers to take critical measures. In line with the European Central Bank declaration a week earlier, the FED did not disappoint investors after chairman Ben Bernanke announced a third round of the so called QE.

As the news hit the wire, markets rallied, gold climbed and the US dollar took a nose dive against the euro.

The Fed pledged that it will buy bonds until the economy gets closer to its goals, as the US keeps on battling against an unemployment rate of over eight per cent, where it has been wedged for almost four years.

Unlike previous stimulus measures, on Thursday the Fed announced that this round will last until a sustained improvement in the labour market is witnessed. A total of $40b of mortgage debt is expected to be bought every month while the prospects of near-zero interest rates have been extended until mid-2015. The Fed hinted further that low interest rates are expected to prevail even after the economy strengthens.

Demand for the single currency improved significantly as the dollar’s value is diluted through monetary easing while the ECB has safeguarded the value of the euro with its new buying intervention programme. Moreover, more money was seen fleeing safe government debt in exchange of riskier debt issued by governments in the periphery and into equities.

Last week the DAX in Germany gained 2.7 per cent, in London the FTSE 100 moved higher by two per cent, as did the main indices in the US. Theses increases meant that European shares have hit highs not seen for more than a year and the S&P 500 in the US reached its highest level since late 2007.

Locally, the Malta Stock Exchange gained 0.7 per cent, but nowhere near that witnessed abroad as the local index closed the week at 3,075.727 points. All traded equities, with the exception of Lombard Bank gained in value with Midi shares heading the list while Malta Post, followed with a 1.6 per cent appreciation.

Turnover improved further, however, at a much slower pace as €0.9 million were dealt across 105 transactions. Trading in Go shares took a turn for the better as turnover reached nearly €0.6 million, while the number of shares traded in Malta International Airport reached 50,000 shares, the second most liquid by volume.

All banking equities were active last week, of which Bank of Valletta headed the list of gainers. The equity posted a 1.3 per cent or €0.03 to end the week at €2.275. BoV kicked off the week on a high after trading at a weekly high of €2.29 which it maintained until Tuesday; thereafter the banking equity posted three similar declines of 0.2 per cent in each session. Almost 30,000 BOV shares were dealt across 29 deals. Since the beginning of the year BoV is up by 2.5 per cent.

HSBC Bank Malta shares posted a mere 0.2 per cent gain to end the week at €2.74 after trading at a weekly low of €2.70. Demand for the equity improved to 27,000 shares traded across 17 deals worth €73,000, up from 4,000 shares traded a week earlier.

Lombard Bank was the only laggard during last week’s trading. The equity which was active during four trading sessions posted a minimal decline of 0.5 per cent to end the week at €1.93. Trading in the bank’s equity improved further as 21,000 shares changed ownership.

Meanwhile, FIMbank was the only equity to end the week flat at $0.80. Just over 29,000 shares were traded.

Go shares closed minimally higher at €0.855, despite having traded at a weekly high of €0.87. An unusual volume of nearly 680,000 Go shares was traded for a total value of €0.58 million.

One deal of 50,000 MIA shares improved the price slightly as the equity ended the week just shy of the €1.76 level. Year-to-date the share price of the airport operator is up by four per cent. Some weeks ago MIA announced an all-time record in passenger movements as an increase of 3.6 per cent was witnessed over the previous record, while when compared to the same period of last year the increase totalled nearly eight per cent.

Following weeks of continuous declines the share price ofMaltapost found some upside momentum after the equity moved higher by 1.6 per cent as it traded at €0.64. However, investors’ interest waned as a mere 500 shares were traded on one deal.

Midi shares gained 12 per cent or €0.03 on a mere 900 shares following a hefty 14 per cent decline a week earlier. Meanwhile, Malita Investments closed flat at €0.52 while one small deal in Simonds Farsons Cisk left the equity’s price intact at €2.10.

In the fixed-income market 76 deals worth over €1 million was recorded. The 7% GAP Developments 2011-2013 was the most liquid issue as 300,000 nominal was traded, while trading in the 7% FIMbank USD 2012-2019 reached 150,000 nominal. On the negative side the 7.15% MIH 2015-2017 lost 2.4 per cent while the 6.25% Corinthia Finance 2016-2019 gained 100 basis points.

In the Government Bonds Market a total of €2.7 million was dealt across 22 issues. Yields improved marginally across the short- and medium-dated issues while the longer dated issues recorded some minimal gains, with the exception of the 5.2% MGS 2031 which gained 50 basis points to end the week at €103.50.

This article, which was compiled by Jesmond Mizzi, Managing Director of Atlas JMFS Investment Services Limited, 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 thisarticle. For further information contact Atlas JMFS at 67/3,South Street, Valletta or ontel: 21224410 or e-mail [email protected].