25 - 31 January 2001

Stabilising the local stock market

Trading on the Malta Stock Exchange has really taken a good battering in the first three weeks of the year. The negative sentiment that is reigning in the local equity market continued this week with the major equities all experiencing considerable losses.
While individual investors are wondering where all their investment has gone to, market analysts are split whether the changes in the MSE are the result of a market correction or else due to announcements made in last November’s budget speech.
There has never been a market correction since the bull rally began some 14 months ago. Analysts however have warned that the market was overdoing the bullish feeling and that the high prices would undoubtedly have to come down. And this is exactly what is happening today.
What the stock market is now experiencing can be defined as a correction, at least for the time being, and this will only help to consolidate and stabilise a market that is now badly shaken.
The MSE Index has fallen more than 480 points since the beginning of the year, a loss of nearly 15 per cent. The end result is that investors are now thinking twice about selling their shares or else investing more in the market. If, as many analysts believe, the current slide is simply a market correction, then prices should stabilise at levels that truly reflect their market value.
The sale of HSBC in 1999 is probably the main culprit for the current slide. With prices then hovering at around Lm7.80, investors saw this as a perfect opportunity to make money and raise capital. Unfortunately, stock markets do not work like that.
Last year, the market already started showing signs that the prices being traded were way too high. Investors were further bitten when a number of IPOs, which were aggressively marketed earlier in the year, also failed to reach expectations.
The question that many are asking is whether the slide will continue or will the market regain its footing. A turnaround will be experienced when shrewd investors see a good opportunity to buy. At present, sellers are unlikely to part with their investments at much lower levels, with individuals preferring to hold back, afraid to buy or sell stocks. The low volume being traded is evidence of this.
If the market does make a turnaround, analysts believe that prices will go up yet only to levels that are more decent and reflecting their real worth. It is nearly impossible to know whether prices have bottomed out or not. Despite all this, there will be continuous indication whether the market will pick up or not. When investors will decide to re-enter the market, and with voluminous bids accumulating, no one will want to miss the opportunity that could trigger an upward move in the general share prices.
The present “crisis”, if one may call it so, should teach many investors about the perils of investing in equities and in funds. Playing on the market hype may be profitable in the short term but a loser in the long term. The stock market is relatively young in Malta. Even financial professionals will admit that it will take time for the market to find its proper balance. However, what is probably more worrying is the lack of investing knowledge the public and business community has in general.
The sudden rush to raise capital through IPOs was more of a marketing exercise that enticed investors to pump in money, rather than a good investment opportunity. If one had to look at the prices these public companies are trading at, it is easy to realise that what seemed to be gold on paper is not necessarily so when traded on the secondary market. Unfortunately, many private investors failed to see this.
Looking positively at the present stock market scenario, one can safely say that prices will settle down to levels that better reflect their market worth. Economist and former Mid-Med chairman Alfred Mifsud has been proved right. He has insisted that HSBC shares should be around Lm5.50. Today they are trading at Lm5.58 or thereabouts, much less that Lm7.82 when the bank’s sale took place.
Making a quick buck off the stock exchange may seem easy. However, like everything else in life what goes up must come down, and hyper-inflated share prices do exactly that.
Investors will now, hopefully, have learnt that lesson.