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How has the local stock market reacted in face of the current pandemic?

Malta-Stock-Exchange

Historically Malta was able to weather international events, such as the 2008 financial crisis, relatively unharmed and this was also the case for the local stock market. The current situation is different and is presenting us with challenges even locally, with a number of drastic measures taken by the government to delay the highly contagious Covid-19 virus from spreading.

International markets, especially the US and EU were quite resilient at first, even though in Asia during January and early February the virus was spreading at a faster rate when compared to previous viruses such as the MERS & SARS. However, the markets quickly corrected in late February and experienced one of the worst sell-offs in history, bringing an end to a record 11-year bull run.

The local market did follow suit, yet the sell-off was relatively lower than that experienced by European & US markets, as highlighted in the table below (performance between 21st February and 16th March 2020).

Region Index % Change
Malta MSE -11.2%
Germany DAX -35.6%
Europe Euro Stoxx 50 -35.9%
UK FTSE 100 -30.4%
France CAC 40 -35.6%
Spain IBEX 35 -38.2%
Italy FTSE MIB -39.5%
US S&P 500 -28.5%

As can be analysed from the table above, the MSE is in correction territory, while all of its peers have entered into a bear market. It would be interesting to know if this is a result of a relatively slow reaction by local investors or the underlying assumption that the local economy will once again be able to weather this storm relatively unscathed.

What is certain for sure is that some industries will feel the brunt more than others, particularly the travel, accommodation and catering industries. This is substantiated with the recent sell-off experienced by a couple of listed companies operating in this sector, with Malta International Airport plc down by 28% and International Hotel Investments plc down by 24%.

A number of other local listed companies experienced a material correction including RS2 Software plc (-19%), MIDI plc (-18%), FIMBank plc (-14%) and Main Street Complex plc (-12%).
It is too early for companies to report on the financial impact as a result of this pandemic. This is further substantiated by the recently issued statement of local public health physician Gauden Galea (WHO representative in China), who expects the coronavirus pandemic to last several months, stating that “the virus is too new and its transmission dynamics are not fully known.”

Despite this, we have experienced some very proactive communication, from listed companies both on the equity and bond market which clearly which provide some insight on their actions and reactions in this challenging environment. We note that this will add value to stakeholders and initiate the process to restore investors’ confidence as we believe continuous communication plays a key role that shapes investor sentiment.

During this period of distress, in which the market is falling indiscriminately, it is important that we remain focused on the underlying fundamentals. Companies with a solid performance record and sound management, will inevitably find ways to resist the current challenges and take the necessary steps to rebound. Additionally in the current climate investors may consider adding a more defensive exposure through companies which have a relatively more stable source of cash flow compared to some more cyclical sectors.

Disclaimer: This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. 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.