In investment we warn people about the future. Positive results in past performances may not necessarily remain good in the future. It works in reverse too. Bad performance may not repeat itself either. Good performance might get even better and bad performance even worse.
Overall, seen over long stretches of time, the equity market reaches progressively higher levels and this means that the odds are in favour that next year's market will be better than this year's but you cannot bet your bread and butter on this expectation.
This is how the MSE Index performed since 1999:
Year Change1999 + 171 per cent
2000 + 3 per cent
2001 - 35 per cent
2002 - 15 per cent
2003 + 14 per cent
2004 + 44 per cent
I included 1999 because it gives the table a completely different message. The large losses in 2001 and 2002 came in the wake of the huge gains registered in 1999 and the first months of 2000.
Around this time two years ago we were hoping the market would not fall; last year we were hoping for gains at least as good as those in 2003; today we perhaps can reasonably expect gains falling between those of 2003 and 2004. But we will only know how 2005 turned out this time next year. This is what makes investment so exciting.
The rollercoaster behaviour of stock markets are making investors more and more wary of buy-and-hold strategies. This strategy used to be very popular and prescribes buying good quality shares and holding them over the long-term, come what may.
Many investors do not want this sort of thing any more and are looking for advisers who can time the market so that the investor is in the market when there are gains and away from the market when it is falling.
In Malta, with the market being so small, such market timing is likely to be left to individual investors since their buying and selling would not be much felt. It would be very difficult, if not impossible, for a big institution or fund to do the same since the market cannot support big transactions and the paucity of institutions and funds makes any one of them big relative to the market.
2004 registered across-the-board gains of 44 per cent. Top dog was Bank of Valletta with a gain of 83 per cent. BoV started the year at Lm2.45 and ended at Lm4.49. It is currently at Lm4.68.
BoV had a number of factors propelling it forward: a great profit record, new products and services, relatively generous dividend distribution, good customer and investor relations and the proposed sale of shares by the two big shareholders, the government and Banco di Sicilia.
The bank's success shows in the way the market is capitalising its earnings, at nearly twice the premium of its main rival. As the privatisation process unfurls, the share price might come in for another fillip, especially if the market approves of the new partner. The best way for the selling shareholders and their advisers to ensure a good fit, and thus the enhancement of shareholder value, is to co-opt the board and management in their decision processes.
One of the worst things that could happen to a profitable company successfully on track to realising its vision and objectives is to be injected with a major shareholder with radically different ideas and unrealistic expectations.
HSBC Bank Malta is no longer really comparable to BoV because it is a subsidiary of an international bank. It does not have to originate products and services from zero, so to speak, but can rely for systems and functions on its parent. It loses some flexibility but the resulting disadvantage is likely to be minor.
Doubts have been raised as to what extent HSBC, as an international bank, is assimilating all its recent acquisitions but this does not seem to apply to Malta, if only because of Mid-Med's relatively small size.
During 2004, the local HSBC saw the share price increasing by 46 per cent and the price is probably being constrained by the high share price figure, now past Lm8, which discourages certain investors who do not detect the share's attractive fundamentals and valuation.
HSBC Malta is due to report its full-year results soon.
Another success was Maltacom, up 43 per cent during 2004. Again, the share price was helped by the pending privatisation but there were other factors fuelling the share price. There seems to be more business focus than in the past, more cost control, and more sobriety.
Importantly, when it comes to new businesses, attention is being devoted to developing units which are likely to have a significant impact on the bottom line rather than debilitating the group chasing too many minnows, as seemed to have been the strategy some time back.
Smaller cap shares also returned a good performance. Simonds Farsons Cisk is seen as being resilient even in the face of very tough competition and conditions in the beverage sector. The shares rose 24 per cent during 2004. Farsons is seen as an important asset play especially now as it seeks to utilise its property holdings more intensively.
Malta International Airport also did well, up 61 per cent. Investors rate it highly, perhaps because it runs the only airport on the island, and is thus unique, but its earnings are rather miniscule, and growing earnings is likely to need substantial capital investment.
The table above gives the movement in share prices during 2004.
pva@onvol.net
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. The company is involved in acting as sponsoring and corporate stockbroker for various listed companies.
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.