One fascinating thing about markets is that there always seems to be some surprise or another, and when there is not, that is also a surprise, and it is there only to surprise you again when you are caught unawares.
Every now and then one looks at the main organised markets around the world and see some whopping fall or rise. If you follow a strategy of investing in markets that are moving, wherever in the world they happen to be, you would be on the lookout for such movements on a daily basis.
Most local investors, however, tend to follow markets which are familiar and from which they receive a regular flow of information: Malta, the UK, the US, Germany, Italy, Japan, maybe Hong Kong. Sometimes you are surprised when, periodically, you look around at the wider world.
At others you are surprised by comparing the same, familiar market at different points of time. There is no end to the surprises.
So far this year, January to June, world equities increased by 2.5 per cent, the same as the euro area, and very much the same as the main American companies, as measured by the S&P 500, which increased by 2.6 per cent. The biggest European companies, as measured by the FTSE Eurotop 300, increased by 4.2 per cent.
Guess which small market in Europe dwarfed the others: Austria - it rose by nearly 29 per cent.
If you had answered Malta you would not have been far wrong either. The Malta Stock Exchange Index rose by 19 per cent, but certain companies did better.
Bank of Valletta increased by 39 per cent, Simonds Farsons Cisk increased by 24 per cent and Maltacom by 21 per cent. HSBC, on the other hand, had touched Lm7, an increase of 28 per cent, but has recently eased back and ended June at Lm6.43.
The relationship between turnover and share prices is a loose one. High turnover does not necessarily lead to higher prices, but it is indicative of a "good" market. A healthy turnover usually builds up pressure on prices, but the direction is not always upwards.
In Malta's case, so far in 2004, turnover in equities was nearly equal to the whole of last year's, at Lm15.3 million (2003: Lm15.7 million). With corporate bonds, turnover for the six months was at 43 per cent of the whole of 2003, while for Malta Government Stocks it was 51 per cent. While bond turnover was at roughly the same pace as last year, turnover in equities doubled, pushing prices upwards, with the index increasing by 19 per cent.
As I said, the UK, US and the European markets in general moved very little. In recent years the US and Europe shared much the same story. Their economies were recently in bad shape, many believed they were tottering on the brink of deflation, with prices falling.
Interest rates were pushed sharply lower, stimulating various asset price bubbles, notably in property. The UK also cut interest rates, not so much due to a bad economy, but to narrow the large interest rate differential between sterling and the other main currencies and help protect the British economy against foreign economic weakness. Property prices shot to the roof.
The situation in recent months, in all three, reflected concern about the huge increases in property prices and inflation. The UK, and now also the US, started to increase interest rates. The European Central Bank gave mixed signals: It kept interest rates unchanged but noted that inflation levels were uncomfortable. It probably meant that interest rates in the euro area would be pushed up soon.
This increasing interest rate scenario, and a rising oil price, in spite of generally good economic numbers, kept shares on edge, and stunted upward movement. There is also the feeling that, while shares in the three areas have more headroom, they are not inexpensive and, if interest rates move too fast and dampen economic growth, there could potentially be sizable falls.
International conflicts also ghost the background, sometimes coming rudely to the fore. The markets are therefore acting cautious. In the US, this is one of the few presidential election years which has not yet seen a sharp rise in share prices. There are four months yet to go, which might contain more surprises.
(Market View will return in September.)
Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such.
The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.