11 - 17 January 2001

Market waves

Richard Galea Debono, CEO of Globe Financial Management, explains the current market situation to Blanche Gatt, and offers some insights for the coming year

As the financial sector waves goodbye to the year 2000 a sigh of relief echoes resoundingly across the board. The past year has been a tough one, both for local and foreign investments. The turgid downtrend of the local scenario did nothing to alleviate the gloom from overseas, where the bubble that had floated countless internet companies burst with spectacular fall-out, technology companies tumbled and the markets in general experienced a dismal and disappointing 12 months.
And while the year was a difficult one for individual investors around the island, the challenges it presented were multiplied hundredfold for investment advisers, whose efforts on behalf of clients are the measurement of their success. I spoke to Richard Galea Debono, chief executive officer of Globe Financial Management plc, about the operation he is now running, and how they coped with the ups and downs of the past year.
“Globe Financial Management,” explained Richard, “offers independent financial advice, and the stress here is on the word independent. We don’t simply sell a package, but we create custom-made packages to suit the precise circumstances of individual clients. The first thing we do when a client walks through our door is to interview him or her so as to be able to assess what their approach to investing is likely to be, that is, cautious, medium or aggressive.
“Then we examine what his or her financial position is – if a
person has Lm1,000, and nothing else, we would advise him to leave that money in a bank. If he has Lm20,000, but no steady income, no house, no health insurance, we would advise him to adopt a cautious investing stance. But if he owns his own home, and he’s got other sources of income, then at that point in time we’ll move on to discussing the creation of a portfolio for him.”
Globe Financial Management coordinates investments for several thousand clients, Richard informs me, for whom, over the past five years, they have invested “some very significant amounts”. “The funds managed for individual clients range from Lm1m to Lm1,000, no one is too big or too small for us,” he said.
Investors are usually advised to spread their risks by buying into a ready made portfolio such as those offered by Collective Investment Schemes or otherwise distributing their assets across a basket of investments based on equities and bonds in different markets and different currencies.
“Returns on most investments are never guaranteed,” continued Richard. “Most people win, some people lose. In general over the past few years people have done well, experienced good incomes. A lot, but not all, have experienced capital growth – one cause of disappointment was the fact that the technology market did badly in the second half of 2000, but the fact that we always advise the client to invest in a mixed bag of mutual funds or collective investment schemes means that the picture is never totally bleak. We also stress that people should always consider investments as medium to long term holdings, and to avoid making hasty judgments on performance based over a few month’s experience.”
“Globe keeps a constant eye on what is happening on the market,” he added. “We are the intermediaries of local and foreign fund-managers. This gives us access to massive research and information resources, and we therefore understand the underlying aspects of these funds. We know their risk profile and are able to advise each individual as to whether these funds are suitable to them or not.”
Globe Financial Management is well-known as the distributor of international providers including Aberdeen Asset Managers, Barclays International Funds and others. “We continually seek new alliances in order to be well positioned to propose to our clients the best that the market can offer.
“Our association with these institutions has meant that we were able to accelerate our learning curve and gain insight into the workings of the market so as to be able to expand our core activities well beyond our function as distributor. And, in fact, over the past couple of years, we have created the Global Funds SICAV plc and its two sub-funds, the Global Bond Fund Plus and the Malta Privatisation and Equity Fund.
“Since June of last year we also created the 12 sub-funds of Melita International Funds SICAV plc. The company currently offers four areas of service to clients, namely, the sale of investment products, fund advisory services, international stockbroking and the sale of retirement planning products through our subsidiary Globe Retirement Planning Ltd. These services are operated out of five different premises: their principal office in Gzira, and three branches in Valletta, St Julian’s, and Gozo.
“We are all set and ready to open our new branch in Qormi in the next fortnight,” Richard told me. At present Globe employs 61 people, of which 15 are investment managers, two are international traders and the rest make up the operational complement of researchers and management. Richard Galea Debono, a lawyer by profession, fulfils two roles, that of managing director and that of CEO.
“I decided to join Globe full-time,” he explained, “because I have been associated with this company as a non-executive director and vice-chairman for over five years. I have always been interested in business law and the associated financial services since the introduction of offshore legislation in 1988 and I felt that this was
a golden opportunity to change direction.”
“Besides,” he continued, “I never saw myself as a lawyer, but as a person who studied law. I have worked in business before, first for five years at Alpine, and then for three years when I was chairman of Telemalta, and these experiences kept me interested in business organisations.”
Looking back for a moment to the past year, I asked Richard for a quick thumbnail sketch of the situation. “Well,” he replied. “The past year was not a positive one for markets generally, although we are by no means unhappy with our company’s performance, The period was characterised by a generally flat local market.
“What caused this? 1999 was a boom year for the local stock market index, with values rising by an average of 170 per cent. This created great expectations. As a result people who got into the market early in the year 2000 at high prices found the market to be illiquid. Well, generally there was a period of consolidation and slight downward correction in the market.

“They were not making the anticipated gains, and because of this they didn’t sell, but held on to their investments to sit the period out. In essence this is usually the right approach to investments, that is, take the long term view. On the international scene, clients who invested in technology companies in the second part of 2000, got a bumpy ride – technology stocks remain low at the moment and as a rule everyone suffered this year, the whole world over.
As an organisation we can say that since most of our clients’ portfolios are bond oriented, the impact of negative equity markets has not been greatly felt by them.”
So what advice does Globe .have for investors at the moment? “Our advice is not only to hang on,” he replied, “but that this is the time to get in. Look at bonds, Technology and Europe as your mix. Most of those technology companies – and here I’m not talking about internet companies, which are a phenomenon in themselves – but the manufacturers of technological components etc, have very sound fundamentals and we feel that at the moment they are undervalued. We consider this is a good time to invest, practically across the board. We also keep stressing diversification.”
“Again,” he continued, “most of 2000 was difficult for the fixed income market, because interest rates in the US and UK were high, and there is a known negative correlation between interest rates and the value of bonds. However, the Federal Reserve in the US, sensing a slowdown in the US economy, has recently lowered interest rates and this is likely to be followed by further decreases.
“This, in turn, could be followed also in the UK and constitutes a development that bodes very well first of all for a capital appreciation of bonds and bond funds, and also for the equity markets, in that companies will witness a decrease in their borrowing costs. In fact toward the end of 2000 the Bond markets have already reacted well, in anticipation of these moves,” he said.
“There are three ways in which we see the market getting better from our perspective,” said Richard. “Firstly, on the local scene, government privatisation will increase the number of choices on the market, second, we feel the recent good results demonstrated by the banking and telecommunications sectors in Malta should have an upward effect on their prices, and third, when the international markets pick up after the battering they took in the year 2000, this will stimulate unit values in collective investment schemes, which in turn will stimulate further interest in these products.”
The future for the financial arena is never cut and dried. The unexpected can and does occur regularly enough to keep many speculators permanently on their toes. How does Globe see the next twelve months from a purely corporate point of view?
“The future for Globe is bright,” said Richard. “As the Maltese economy progresses and experiences further liberalisation, such as that that seen in Exchange Control, Maltese people will be seeking ways and means to maximise their assets, both in terms of income and capital growth. A large amount of liquid assets in Malta are still held in bank deposits – Central Bank figures for 2000 show approximately Lm2.1 billion classified as resident deposits – and I truly believe that the investment culture will take firmer root in our society. More and more people will be looking to our services and assistance, and in turn we will be able to give them ever-increasing levels of service.”
“Globe itself has also recently widened its share-holder base and accepted new share-holders among which are some extremely solid local institutions. Some key members of management were also given the opportunity to participate, and one of the matters we are very actively considering is the expansion of the share-holder base by a much wider margin.
“Developments in this direction will be publicly announced at the appropriate time, and we hope that in this way we will also be able to offer our clients the opportunity to participate fully in our success.”