David Curmi, CEO of MAPFRE MSV Life p.l.c. and a former president of The Malta Chamber, made waves yesterday when he called attention to the plight of investors who are “silently suffering” with the Malta Stock Exchange (MSE) Index being “possibly the worst performer in Europe”.
He pointed out that while global indexes, as well as the Maltese one, fell significantly in March and were well on the way to recovery in June, they were no longer on the same path by September, with several indexes turning positive by then while the MSE Index was once again in freefall.
The MSE Index had fallen -19.29 per cent in March, but had clawed back some of its losses by June, at -13.19 per cent. Come September, however, the figures were truly alarming as the Index stood at -26.06 per cent.
WhosWho.mt contacted Mr Curmi to get his thoughts on why Maltese stocks are faring so badly, what can be done to kickstart recovery, and what investors can do to lower their exposure to risk.
Mr Curmi, who sits on the boards of a number of listed companies, did not mince his words about the problems inherent to the Maltese stock market.
“It is a very shallow and inefficient market,” he says, “so prices on the MSE are affected by very small daily trades.”
He points towards significant sector concentration for the large fall in the Index’s value, with tourism, property and financial services making up a bulk of the market.
“The market lacks diversification. For example, tech companies are few. This makes the market as a whole less resilient to economic crisis.”
Mr Curmi also pointed to the cancellation of dividends by financial services companies, saying these “did not help”.
But why is this only a local phenomenon? Worldwide, stock markets have returned to positive territory after a very turbulent 6 months. Meanwhile, the Malta Index is reaching record lows.
“The Maltese market is generally immune and insulated from international market sentiment. In fact, the MSE Index is generally always one of the last to recover from global crises, so recovery will be slow and long.”
Asked about the actions that need to be taken to turn the market around, he acknowledges that this is difficult for various reasons. One is that most listed entities are unrated, whereas institutional investors have regulatory constraints on where to invest. This means such institutional investors are less active on the market.
He also posits that additional tax benefits for investors can help.
“We need to create a greater equity culture,” he suggests. More financial literacy is also a must. He notes that many savers are still cautious about investing in more efficient foreign markets or global indices.
“The ‘Home Bias’ is still very prevalent in Malta. There is a significant number of small savers who are overly exposed to the local market and lack diversification across market.”
“Overinvesting in domestic assets exposes portfolios to concentration risk,”, he warns.
Diversification is therefore the name of the game, with Mr Curmi pointing out that it not only reduces exposure to overall risk, but also increases opportunities.
With little sign of the Maltese stock market rallying in the short term, investors might be best served by looking abroad for financial investment opportunities.
