700 and counting

Article #700 by Edward Rizzo - Published Weekly

Today’s article is my 700th media contribution on financial matters. When I penned my first article in May 2007, it was inconceivable that I would achieve such a milestone.

At the outset, the main objective of my articles was to help improve investor education in Malta. Although the task of writing on a weekly basis over the past 14 years has been rather challenging, the evident need for me to fill the gap in raising awareness on financial matters continued to provide me with the necessary eagerness to do so. Indeed, a lot of effort still needs to be done by various stakeholders to enable the retail investor community to achieve a better understanding of such important matters.

My articles over the past 14 years very often delved into the financial performance and trends of a number of equity as well as bond issuers listed on the Malta Stock Exchange. In view of the ‘home bias’ favoured by many retail investors following the commencement of trading on the MSE in the early 1990’s, coupled with the lack of proper financial journalism across the Maltese media, I felt that it was important to dedicate time and energy to highlighting important trends across a number of companies listed on the MSE. Moreover, the growth of the equity and corporate bond market over the years necessitated coverage of a much wider spectrum of the local investment universe. As indicated last week, the size of the Maltese corporate bond market increased substantially from €486 million in 2007 to the current value of €1.91 billion. Understandably, many investors do not have in-depth knowledge or the time to delve into a company’s financial statements in a detailed manner to gauge the financial soundness of a company issuing financial instruments. Hopefully, my contributions over the years helped in increasing awareness across the investor community also through the introduction of key financial ratios that need to be monitored to periodically gauge the financial strength, leverage and overall credit worthiness of a company.

In order to publish the required analysis of a company’s financial statements for the benefit of the investing public, the regular dissemination of information by the various equity and bond issuers is of fundamental importance. Although until some years ago, the scrutiny by financial analysts may not have been well-received by some of the issuers as most were not forthcoming with providing adequate information, the role of the financial analyst has become more appreciated. Moreover, the level of information required to be published by the equity and bond issuers has also increased notably over the years. This has also helped to provide more transparent and timely information to the investing public.

Although some of my contributions were also dedicated to a number of the larger companies across the US (mainly the technology giants that dominated global equity markets for the past years), it is also fair to say that given the numerous amount of articles widely available across the internet covering financial developments taking place overseas, the contributions made by renowned international financial commentators are better positioned to provide the required analysis and information on such companies.

The two major shocks to the global economy over the past 14 years, namely the international financial crisis in 2008/09 and the significant impact as a result of the COVID-19 pandemic in early 2020, undoubtedly left a marked impact on investor sentiment. In view of the ongoing nature of the pandemic and the economic repercussions which are still very evident today, investors continue to face undeniable uncertainty on how the post-COVID economy will look like. A number of my articles written in the aftermath of the global financial crisis in 2008/09 and also over the past year covered these major shocks and the importance for investors to have a long-term investment horizon when building and adjusting their investment portfolios over time.

In order to contribute to the improvement in investor education, several articles covered general topics on investor philosophy and the mindset that should be adopted by investors of various ages and with differing objectives.

For instance, an article I had published in October 2012 entitled ‘Lifestyling an investment portfolio’, in which I had discussed a general rule advocated by some academics that the bond allocation in an investment portfolio should generally equal the age of the investor, still remains very relevant today.

I had also written an article in February 2013 about the importance of ‘cost averaging’ which could have been very useful for investors over the past year as equity markets at first tanked as a result of the pandemic. The strong upturn across US and European equities from the March 2020 lows continues to reinforce the view advocated by most commentators and successful long-term investors of being ‘greedy when others are fearful’.

The very low interest rate environment that dominated the investment world over the past decade is surely one of the major challenges that is still being faced by many Maltese retail investors. Over recent weeks, I delved into this topic by publishing an article on ‘Investing for retirement’ and another on ‘The role of the capital market’. Given the current interest rate scenario, it is important for investors to own a diversified portfolio of assets to generate an additional income stream and not maintain excess funds lying idle across bank deposits. Over recent years, a number of investment opportunities were made available by existing or new issuers on the capital market. These enabled investors to achieve a more diversified portfolio. This trend should continue in the months ahead given the reported interest of new and existing issuers willing to tap the Maltese capital market.

While the bond market has grown in a consistent manner over the past ten years, the success of the equity market has been less pronounced although the equity offerings by PG plc (in the first half of 2017) and BMIT Technologies plc (in early 2019) were amongst the largest ever IPO’s that took place. It is fair to say that the Maltese capital market can still be considered to be relatively young since it was set up in 1991. However, most would agree that the rate of growth in the number of equity listings has indeed been disappointing. The equity culture in Malta is still not as widespread as it should be given the extent by which the Maltese economy has developed over the years. Indeed, the local equity market may still be considered a “frontier” market compared to other markets worldwide as there still exists a general tendency for many Maltese companies to shy away from the use of the equity market.

The successful offerings by PG plc and BMIT Technologies plc over the past 4 years ought to have encouraged other businesses to understand the long-term benefits of a public listing even when considering the tax efficient method for incumbent shareholders. In fact, following new measures introduced via the 2017 Budget, the sale of shares to the public via a listing on the MSE is not subject to capital gains tax. This could represent a sizeable saving for shareholders of companies of a certain size especially when compared to a trade sale (not through a stock exchange listing) which would then attract tax on the capital gain made by each of the shareholders.

In addition, a listing creates an accessible and transparent market for a company’s shares. This is an important consideration especially for family-owned companies which over several generations would have seen their individual family shareholders increase to include many who are not directly involved in the running of the business and would wish for a clean exit route for part or their entire shareholding. In other instances, the equity market also serves as the enabler for capital restructuring or a platform for the creation of shareholder value especially when M&A activity or expansion opportunities are involved.

As such, all stakeholders in the capital market should adopt a more proactive approach to explain the benefits of using the capital markets which invariably over the long-term far outweigh costs, regulatory obligations and public scrutiny.

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Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “RFC”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon.

RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

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