29 March - 4 April 2001

Traders’ Platform

ALFRED MALLIA, Chairman of the Malta Stock Exchange, shares his views on the current market situation with Blanche Gatt, and talks of exciting future plans for the MSE

Stockbrokers and investors the world over have had reason to be crestfallen over the last year or so; as markets the world over slowed down and high-flying so-called “new economy” companies crashed from the dizzy heights they had been scaling, investors lost fortunes while the lucky ones held their breath.
Malta was not uninfluenced by the worldwide trend, and despite the fact that the companies trading through the Malta Stock Exchange had nothing in common with their hard-falling international counterparts, share prices dropped as local traders homed in on a mood that became impossible to ignore.
But at the Malta Stock Exchange, Chairman Alfred Mallia is undismayed. “We have around 50,000 accounts registered here,” he said, “each one relating to an individual or a household. When you remember that of the circa 120,000 employed people in Malta, not all would be in a position to start buying up equity, that figure becomes very interesting indeed. In fact, we reckon that a maximum of 80 to 85,000 Maltese are in the category of people that would invest in stocks and shares, and considering that we’ve only been operating for around eight years, that 50,000 is an impressive figure.”
And, according to Mr Mallia, it’s growing fast. “The Malta Stock Exchange received around 4500 applications for the recent government bond issue,” he said. “Of these about 1000 were new accounts.”
Maltese people have around Lm1.8 billion invested in shares and bonds; just under 1 billion in equity in local companies and around the same amount in local bonds. The directors of the Stock Exchange see another Lm2 billion sitting in savings and fixed deposit accounts in the banks as potential future investments that could swell the amount turned over by the Malta Stock Exchange significantly.
“We believe there is a great need for investor education,” commented Mr Mallia. “And in fact together with the Institute of Bankers we are running a series of lectures for the general public where we teach the basic principles of good investment.”
There are ten local companies listed at present on the Malta Stock Exchange. Besides these, government bonds and over 300 foreign investment funds are also offered. “Our role,” he explained Alfred, “is to make a platform available for buyers and sellers who are obliged to trade listed shares through the Stock Exchange. Any company who wants to issue shares must meet the regulations that are laid down, and here the most important thing is that disclosure of relevant facts is complete and all relevant details are made known and a clear picture of the company’s status is shown. If any surprises do turn up later, we simply stop trading until it is clarified – as we did in the HSBC case, for example. I was dragged through the courts and tribunal for eight long months over our decision to stop trading the shares, but our point throughout was that there wasn’t sufficient information at the time for investors to make the right and proper decisions.”
In fact, in the aftermath of the suspension of HSBC shares, as many will remember, there came a sudden flurry of interest in buying shares, and prices shot up dramatically. And the general excitement carried the other companies listed on the Stock Exchange along with it too; prices rose spectacularly, and for a short time Malta’s Stock Exchange was imbued with a dynamism the like of which it had never seen before. However, this was a short-lived scenario. “We had a calm eight years,” he commented, “then the fury of the HSBC business, then calm again. The bubble had to burst – for one thing because where we’re talking money, we’re also talking psychology.”
The downward trend on international markets started by the failure of the dotcom companies affects all investors, who decide to sell their shares or sit tight and wait and see. And this sets off a chain reaction, which affects everyone. The Stock Market is a total reflection of the market, and of the mood on the market. And Malta is not immune to this mood. If people are talking about recession in the US and in Japan, Maltese investors are going to get just as cautious as others, even if their investments are only in locally listed companies.
“But this caution is not actually depressing the market,” he continued. “For every person selling shares there is invariably also someone buying. We are an order-driven market and one very telling figure is that recording unsatisfied bids and unsatisfied offers. If these figures were disproportionate, then we would realise that everybody is selling but no-body is buying. But so long as the situation remains that those figures are more or less in balance, then we know there is no problem.”
In fact, a quick look at the Malta Stock Exchange statistics on trading over the last few years show that while during the 250 trading days in 1999 just under 17,000 deals were transacted, in 2000 the figure was just over 17,000. The market turnover for those two years was Lm190 million in 1999, which included the sale of HSBC, and Lm150 million in 2000. This year’s figures for January and February show a total of 1548 deals and a turnover of Lm14 million in the first month of 2001, and 828 deals with a turnover of Lm12 million in the second. Of the January deals, 1194 were in equities, 98 in corporate bonds and 256 in government bonds. In February, there were 506 deals in equities, 71 in corporate bonds and 251 in government bonds.
These figures show clearly that while traditionally the Maltese investor may have preferred the security of practically zero per cent risk stocks and bonds, equities are now taking over. “Part of the reason people thought Maltese preferred stocks and bonds to equity,” commented Mr Mallia, “was due to the fact that until recently only stocks and bonds were available. Now that equity is available local investors are buying it up steadily.”
One of the concerns about having such a small Stock Market is that it appears dangerously easy for an unscrupulous market trader to manipulate prices to his own advantage. “On the contrary,” he replied. “It is not easy to manipulate our market because all deals are recorded and if anything untoward or unusual is detected, then it is investigated. Of course there have been occasions that we have had to investigate, like the buying and selling of shares between apparently related parties, or if say someone had to write in the newspaper that people should sell certain shares, then later coming in to buy them. The Council is regularly informed of cases under investigation. Everything is very closely monitored and we have daily reports on every single transaction and deal that takes place.”
The Malta Stock Exchange became a member of the International Federation of Stock Exchanges (FIBV), based in Paris, two years ago, and is now in the process of gaining membership to the Federation of European Stock Exchanges. Both Federations apply stringent screening processes to aspirant members, and Mr Mallia insists that this guarantees a certain level of credibility and assurance to the organisation.
And ambitious plans are being laid for the future of the Malta Stock Exchange in which this credibility will be of even greater significance. Starting with their late summer relocation to the Garrison chapel in Valletta, and the implementation of their Remote Stock Exchange network within the next two months, the directors of the MSE are looking very closely at a new plan: to turn the Malta Stock Exchange into a central Mediterranean Stock Exchange.
“This idea is still very much in the embryonic stage,” said Mr Mallia, “but we are examining the situation and have signed cooperation agreements with the Cairo and Alexandria Stock Exchange and will be signing the same type of agreement with Tunis imminently. Cyprus has asked to enter a cooperation agreement with us and we are looking at a future when the political problems of the region are sorted out and a huge market will definitely emerge. By taking a leading role now, we will be in a position to take advantage of all trading from around the Mediterranean basin, the Middle East and even Southern Europe. However, up to now we are freewheeling on this. There is no plan on paper as such, but we are following leads and by the beginning of next year we shall be calling a meeting in Malta for all these countries in order to tell them of our ideas and enlist their support. In the meantime we have already spoken about this to most of the established centres worldwide, who have also shown their support.”
Even with just the cooperation agreements enabling cross listing with Cairo and Tunis, the future for local market watchers is beginning to look interesting. Besides that, there are some 15 issues likely to be listed this year. And as the Market grows, and its wider potential is realised, playing at home will become a lot more attractive to local investors. Though admittedly, we may have to wait a bit longer before the decibels on the trading floor rise to international levels.