The Malta Stock Exchange celebrates its 30th anniversary
It was January 8, 1992, when the first trading session of the Malta Stock Exchange took place. It’s hard to document all the far-reaching changes that have taken place over the years in my short post today. Instead, I will highlight what I believe to be some of the key milestones, provide some statistics on performance over the years, and conclude with some thoughts on the current state of the local capital market.
In the early years, the Malta Stock Exchange was only open on a weekly basis (a Wednesday) for three hours between 9.30 a.m. and 12.30 p.m. Then, from May 1998 before Maltacom plc (now GO plc) listed, trading changed to a daily basis also from 9.30am to 12.30pm. This continued until April 2017, when the current six-hour daily trading session came into effect.
When trading began in 1992, traders representing each of the member firms had to be physically present on the trading floor of the MSE to transact. This is now a distant memory and e-commerce using the Xetra platform is how member firms conduct their day-to-day trading activities today.
The benchmark capturing the performance of the entire stock market only began to be calculated in 1996 and therefore it is not possible to extract data since the start of trading in 1992. Nevertheless, a 26-year time series provides enough data over multiple business cycles to derive important information about different asset classes. The MSE Equity Total Return Index produced a compound annual growth rate (CAGR) of 8.4%. This is not materially lower than returns seen in more developed international markets despite the significant underperformance of Maltese equities over the past four to five years. The S&P500 index in the US, for example, has recorded a CAGR of just over 10% over the past 26 years including dividend payments.
The Maltese stock market’s best annual performance was recorded in 1999, when the index soared nearly 175%, boosted by euphoric and speculative sentiment surrounding the government’s privatization programme, which also coincided with the reactivation of the request of Malta to become a member of the EU.
Other notable positive years for the MSE Equity Total Return Index were 2004 (+50.7%), 2005 (+69.5%) and 2015 (+37.1%). In the last 6 years since the very good performance of 2015, the overall stock market has been rather subdued with slightly positive years in 2016 (+6.5%), 2018 (+3.8%) and 2019 (+6 .9%) and negative performances in 2017 (-1.5%), 2020 (-11.9%) and 2021 (-3.2%). The weakest years for the Maltese equity market were 2001 (-33.6%) and 2008 (-32.3%), coinciding with bear markets also internationally.
Given the high weighting of large companies in the equity index, the performance of the MSE Equity Total Return Index is highly dependent on the movements of a handful of large companies on the MSE. As such, it overshadows the positive dynamics of other small businesses. Unfortunately, sharp declines in the share prices of Bank of Valletta plc and HSBC Bank Malta plc, which have been among the most popular stocks with Maltese investors for several years, have shaken the index’s recent performance as well as general sentiment. investors.
BOV’s market capitalization has grown from over €1 billion in 2006 and, most recently in 2017, to a current value of just over €500 million. HSBC Malta’s market capitalization has shrunk more dramatically, falling to a current value of €330 million, from over €2 billion in April 2006.
The weak performance of these two banking heavyweights has overshadowed some of the more recent successes of Maltese investors. Prior to the COVID-19 pandemic, Malta International Airport plc’s share price trajectory was very positive, showing the typical benefits of investing in fundamentally sound businesses with clear growth opportunities.
One of the most successful case studies of recent IPOs has been that of PG plc, as the share price jumped 140% (translating to a CAGR of 20.5%) and the company’s profitability has continued to reach record highs over the past two years, allowing the company to continue paying out dividends semi-annually, despite the pandemic.
RS2 Software plc is another company that has made one of the strongest MSE gains. Since its IPO in 2008, the CAGR has stood at 19.4%, with the company’s market capitalization jumping to €350 million since its €30 million debut. This impressive performance was mainly boosted by the historic agreement that RS2 had reached with Barclays Bank plc, which had acquired the company’s software license and, shortly after, also became its second largest shareholder.
These positive experiences may be a distant memory for some investors following the lackluster performance of recent years amid a significant slowdown in trading activity. Weak trading activity is one of the most worrying factors within the Maltese investment community and coincides with the Financial Action Task Force’s decision to place Malta on its gray list in June 2021.
Although a number of senior officials say Malta’s gray listing has had no impact on the real economy, lackluster activity in the equity market is a major indicator of concerns raised by local investors . If the authorities do not recognize this and discuss ways to help improve market liquidity, it could be very damaging not only to the equity market but also to the entire economy.
Another important factor that needs to be reconsidered is the rigidity of the requirement for a company to have a 25% free float on listing. I’ve mentioned this topic many times over the years and it’s becoming more evident these days with the increased issuance in the equity market at a time when public appetite is lukewarm. Furthermore, the larger size of companies seeking to enter the market either to finance their growth ambitions or to pursue succession issues, which are two of the most frequent factors for a company to adopt a public listing, places this firmly on the agenda.
Incidentally, it was only last month that international media reported that the UK’s Financial Conduct Authority had finalized a major overhaul of listing rules in a bid to attract more companies to the Exchange. of London, particularly in the technology and biotechnology sectors. One of the reforms includes a change in the minimum requirement of a bid to 10% of a company’s shares from the previous threshold of a 25% stake.
The 30th anniversary is a milestone for the MSE. It offers all stakeholders the opportunity to reflect on the major changes that have taken place over the years to bring the market to where it is today in terms of an equity market with a market capitalization of 4 .56 billion euros and a growing corporate bond market with a total exceeding the level of 2 billion euros, as it has finally become a more important intermediation channel between retail and institutional investors and the business environment.
However, the 30th anniversary coincides with what I consider to be a crucial moment when important decisions must be made in order to rekindle the enthusiasm of investors for equity participation which has become an issue of growing concern.
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