May turned out to be a negative month for Malta Government Stocks as yields rose sharply, with the CC Malta Government Stock Index (Total Gross Return) registering a decline of 0.56%.

This is reflective of the fact that yields on Malta Governments Stocks rose markedly in line with their European counterparts, on the back of the turmoil surrounding the Italian political stalemate.

On the back of the political tensions in Italy, which are resulting in an adverse effect on Italian assets, market volatility rose sharply in the Eurozone in the latter stages of the month. This led to the weakening of the euro and significant widening of Italian government bond spreads.

The roller coaster ride in the attempts to form a new Italian government have resulted in a marked risk-off mode, unnerving the markets with the prospect of an early election that strengthens the anti-establishment parties.

In fact, President Sergio Mattarella’s refusal to accept a proposed finance minister was not welcomed by the markets, sending Italian assets in disarray.

Risk aversion was brought about by Italian woes, US/North-Korea geopolitical tensions, trade wars, a rallying US dollar, volatility in Turkey notably as the Turkish Lira declined markedly.

Developed markets were in disarray for the better part of the month, and Emerging Market credit fell victim to happenings in the developed world. The jitters felt in global markets had more than a ripple effect on emerging markets, as weakness crept in a strong way.

In the presence of unfriendly market conditions and risk off mode, emerging market central banks have either postponed interest rate cuts (such as Brazil) or else hiked rates (such as Argentina and Turkey). Structurally and fundamentally, the emerging market story remains intact.

Companies and central governments alike remain in a better position than they were 18-24 months ago, but May saw their financing costs sky-rocket with the strengthening dollar against their respective domestic currencies.

In theory, a stronger USD decreases emerging markets capital flows, reduces commodity prices, weakens their currencies and results in potential sovereign rating downgrades.

However, long-term prospects still look positive. EM fundamentals look in better shape as larger foreign reserves and relatively contained inflation in most EM economies are expected to keep EM economies supported. In addition, when volatility subsides, investors are expected to single out the good EM countries from the weaker ones.

Disclaimer: This article was issued by Mark Vella, investment manager at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.


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