5 - 11 July 2001

The market will turn – Rothschild

by a staff reporter

The current stock market situation which has seen a plunge over the past months is positive for Malta, Alex Illingworth, manager of Rothschild Asset Management Limited has told The Malta Business Weekly.
“The market in Malta has not yet fully matured and for this reason people have been bewildered by what has happened. However, all markets are cyclical and Malta is no exception.”
The experience gained from living through a period like this is
likely to be beneficial to Maltese investors in the long run. Mr Illingworth said that stock valuations have now contracted to much more interesting levels.
“At the moment, there seems to be no confidence and people are not buying equities. But when the market is down and unloved, that is often the time to start accumulating positions. The market will turn at some stage and as an investor one wants to be a part of that move. The earlier an investor is positioned the most upside he/she stands to gain,” Mr Illingworth said.
Mr Illingworth is based in London but monitors the Maltese situation and also compares it with what is happening globally. He mentions the situation on the Malta Stock Exchange whereby the share price does not always reflect the future potential of the company. “For example, Maltacom’s shares might have been expected to appreciate because of the success of go Mobile but this is a classic case of people who are not prepared to support the company without seeing hard evidence in results,” he said. “In a bull market, people would just buy those shares and the stock would quickly reflect this future benefit. This scenario is not unique to Malta, indeed around the world investors are at the moment not prepared to discount back the growth that companies project over the next few years.”
He points out that investor apathy is a problem in a young market like Malta’s. “The market needs more companies at decent valuations. It is important the market presents companies which are rightly priced and not over-valued. If a company is over-valued, then the chances are that shares will trade lower than the IPO value. This makes investors upset and also leads to the Stock market losing credibility,” he said.
The Rothschild Asset Management manager said the key for an IPO is to come out with the right valuation. The relationship this international asset management group has established with Valletta Fund Management is considered as excellent.
“Our business has exceeded expectations. A few years ago we started off with very simple international funds but then we moved
into Malta Bond funds and a Malta equity fund. We now also have a top 100 equity fund and we are developing funds for the Euro Mediterranean region.”
Malta follows the global patterns with regards to markets. “No market can trade independently. When markets go down, people are prepared to pay less and this happens everywhere. The story in Malta is the same as everywhere,” he said.
He is rather impressed with the amount of entrepreneurial activity going on in Malta. Recently two stockbrokers have given different recommendations to investors regarding Maltacom shares. One company had suggested a sell while another had called for investors to buy. Asked about this, Mr Illingworth said such a situation is fantastic. “It is what makes the market. The difference in opinions and models in the way to value a company are very important because that is what drives the share price. We will see who is right in future but it is important to get the two sides of the coin,” he said.
“It is obviously very important for companies to be forthcoming with figures and future plans where the rules allow. This allows companies to be thoroughly researched so that investors can be provided with important information,” Mr Illingworth said.
He warned that it was critical for companies not to kill the market because credibility was very important. “It will not be in the long-term interest of anyone if companies are overvalued at the IPO stage. It is maybe for this reason that the funds of Rothschild and VFM are proving to be more popular,” he said. “We at Rothschild have a track record and are trying to impose the best standards on how to look at valuations of companies. We are using the same procedures and practices we use in Britain and in Europe.”
Interest in the local market should hopefully be kick-started again by the privatisation of a number of government companies in the coming months.
The assistant general manager of Valletta Fund Management, Kenneth Farrugia told The Malta Business Weekly that unfortunately the privatisation programme has been delayed. Government has indicated that by the end of the year we will have six government-owned companies privatised and this should widen the current limited investment opportunities on the Malta Stock Exchange.
The next big boom in Malta is however expected to be brought about by the pension reform. “There is a problem which mirrors that of other European countries. The report on Pension Reform in Malta will be important and this should also give a boost to activity on the Malta Stock Exchange over the longer term,” Mr Farrugia said.