It was a bright Sunday morning when my wife, daughter and I were off to a picnic with family and friends in an idyllic field in the north of Malta. I am not the type to get to a place super early; we were scheduled to meet the clan at 11am.
With my four-year-old bursting with enthusiasm and energy, I couldn’t help but break my routine so we headed to the picnic at 1030am. To our surprise, we weren’t first. Peter, a close family friend beat us to it as he made sure that our traditional spot was not taken by anyone else. His daughter and dog were also there too, much to the delight of my daughter, who got straight to setting up the picnic and playing area.
As we waited for everyone else to arrive, Peter and I grabbed the closest director’s chair we could find (before they got hogged by everyone else) and began our usual Sunday morning chatter on the previous day’s football results. However, Peter swiftly changed the tone and direction of the conversation to a more serious one, a topic which I am stuck with (at my choice, with no regrets I may add) for the rest of my life. And that is of investments.
I have known Peter for well over a decade and a half, but I have never been confrontational with him on the topic. He knows my background, who I work for and what my job is, but I never really had a one-on-one conversation on investments with him. It is not in my character really to bring up the subject out of the blues. It could be perhaps because I was not sure if the subject really interested him or maybe because he never really understood what my job is about. Well that was until last Sunday.
I was caught off guard when he asked me what I thought about the newly issued Malta Government Stock and whether I thought it was trading at expensive levels or at fair value. Even more, he went one step further and quoted the yield level at which the MGS 2040s where trading (traditionally, Maltese investors quote bond levels in terms of pricing and rarely in terms of yield), clearly a breath of fresh air from what I had been accustomed to hearing from a typical Maltese investor.
After exchanging views on the recent performance of local government bonds, we widened the discussion to the European bond market (sovereign, corporate and high yield) as well as European equities too, and the remarkable performance all asset classes have had so far in 2015, particularly the latter. I went on to explain the mechanics of the famous January 22 ECB announcement and the implications of the commitment by the ECB to purchase up to €60bn worth of bonds for a period of at least 19 months, and how this has positively impacted market dimension. To which he added that he was aware that the ultimate goal of the ECB was to propel Eurozone inflation up to its targeted 2.0% level, and that the so-called extra money in the economy would make consumers feel richer and boost the region’s consumption.
I was impressed at what I was hearing at this stage, and gladly let him take over the conversation, butting in with some remarks to remove any uncertainties which he had. We also touched upon the issue of the US being at a different recovery stage than the Eurozone and I was asked what the implications on European markets where if the US Federal Reserve had to increase rates this year.
And I quote: “So tell me, if interest rates in the US had to increase and Eurozone rates remain low, it would undoubtedly reach a point where US assets could become attractive against their European counterparts. Does this reasoning make sense or am I missing out on something?” Of course it does, it makes absolute perfect sense I told him, and it was a trend which was witnessed in the first quarter of 2015.
In fact, US bond funds, both Investment Grade and High Yield funds enjoyed healthy inflows throughout this period, primarily as a result of the disparity in yields but also on prospects that EUR based investors could benefit from a benign outlook for USD denominated investments, as was apparent following the ca.9% appreciation of the USD vs the EUR so far in 2015.
Peter, a businessman in Malta who is in his early 50s, is no stranger to ‘calculated’ risk taking. He told me, “I built an exposure to oil a few weeks back, when the price had dropped to ca $40 a barrel. I also have a decent exposure to European equities which I am gladly holding on to for the time being and I have also no intentions of letting go of any Malta Government Stocks which I own.”
It was odd, to say the least, to hear this person speak to me about inflationary prospects, the fracking process in the oil industry, yield movements, earnings potential, etc. I was jaw-dropped at the level of detail of his arguments and wondered where he got all this information and knowledge.
Simple he told me; “I wanted to know what investing was all about and where I was putting my money, and the obvious answer to me was to read and take interest in the subject. The topic really fascinates me and I am trying to encourage my children to generate an interest in investing, from a young age. I send them interesting articles I would have read, and ask them if they would have read what I would have sent them, and do my utmost to try and educate and guide them as best I can on the subject.”
Wow, I was pleasantly surprised. Being a non-client facing person working in the financial industry in Malta, it was surely a remarkable experience listening to someone from outside the industry in Malta talk with great passion and detail about the topic. It would be premature at this stage to generalise, and state that the local investors have come a long way, because there clearly is a lot to be done at educating Maltese investors. And Peter’s case could be an isolated one, but I am pretty sure that it is not, and that bit by bit, the appetite for knowledge on investing is growing.
Many local financial service providers seem to be doing their utmost at instilling this new culture. It will continue to be a lengthy process, but just like Peter did, we all need to lend a hand at educating ourselves and really know how capital markets operate.
Disclaimer:
This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.