Investors are disposing of their equities and opting for bonds, which are considered safer in the present market environment, according to leading stockbrokers.
Falling stocks are a sign of diminishing confidence in the global economy and this situation is not happening only in Malta. This move was described as “reasonable” by financial analyst John Cassar White who feared that what was taking place now was almost a repeat of what happened in 2008 when Lehman Brothers collapsed in the US, bringing a snowball effect on all major markets.
When contacted, stockbroker Jesmond Mizzi, joint managing director of Atlas JMFS Investment Services Ltd, said that, as a result of concerns over sovereign credit in Europe, investors were not willing to risk and sold off equities, opting instead for investment grade bonds, considered to be the safer side of the market.
Throughout the past weeks, foreign equity markets recorded significant declines as contagion worries in Europe intensified. Attention returned on Italy’s debt situations with investors weighing the effects on the European and global economy if the peninsula were to default on its credit.
He explained that the US debt problems, which surfaced recently in world markets, intensified the flight from risky equities to safer investment grade bonds, gold and cash.
The local equity market seemed to have been sheltered from certain foreign developments, he said, because local equities were more responsive to local developments. A clear example was the recent plunge in banking equities, which, among other things, were affected by the news that activity in the local property market had dipped and the continued uncertainty in Libya.
“The way forward depends on economic indicators, corporate earnings, political stability and investors’ confidence. Also, a lot will depend on whether investors believe that after this sell-off there is the opportunity to start buying again,” he said.
In the same vein, Edward Rizzo, a director at Rizzo Farrugia investments consultants, said that, while international equity markets tumbled this week, the search for safety was reflected in a sharp upturn in bond prices in the US, the UK and in Germany.
This was also reflected locally with the Rizzo Farrugia MGS Index advancing by 0.6 per this week to its highest level since January 19, he said.
Mr Cassar White believes the European stock market was “passing a vote of no confidence in the solutions provided by European politicians” who were showing “political indecisiveness and lack of leadership” in the way they were attempting to solve the problem.
He said these politicians were more interested in short-term gains rather than providing long-term solutions to the problems faced by Europe and even the US.
Concerns about a second recession stem largely from fears that fiscal consolidation in Europe and the US, following government bailouts during the financial crisis, would lead to a major reduction in government spending with potentially negative economic effects.