28 March - 3 April 2001
The business times / Corinthia seminar
At the latest Business Times Corinthia seminar held last Friday at the Corinthia Attard, a number of issues were brought to the floor and thoroughly discussed by participants.
The seminar's theme focused on the resounding need for specialised financial journalists and analysts. While the subject was heavily debated, not without a fair share of criticism meted out to the media, attendants were left with little doubt that Malta's financial sector is in dire need of timely, accurate and unbiased market information.
The call for further corporate governance rules, the publishing of dealings involving directors of companies listed on the MSE and corporate stock warnings echoed throughout the conference and was welcomed by all.
Misuse of power and conflict of interest must be averted John Dalli
Mr John Dalli
Finance Minister John Dalli, addressing The Business Times Business Breakfast contends that while timely, relevant and objective information is the key element to good decisions in any sphere, such information is the main element in the financial investment sector.
However, he adds that there is a large cultural void in the flow of information on which investment decisions can be based.
Mr Dalli explains that, for information to be correct and objective, it must be researched and that sources can forward or sometimes provide unsolicited information that is often slanted towards the creation of a particular perception. In doing so, the irresponsible information provider would swallow the information and make it his own, publish it to create a spin and quote anonymous sources to give credibility to the spin.
However, the responsible information provider on the other hand, would connect the source and the information, question the motivation, dig into the substance of what he is being fed, filter the various information elements and ensure that he has collaboration or an independent opinion on the facts.
Meanwhile, Mr Dalli points out that in the bigger more mature markets one easily finds an army of independent observers who make it their business to get at the information, pass it through their intuitive filter and make it available to the public at large.
However, he laments the fact that there is an imperfect situation in Malta as these independent inquisitors are absent and their role is assumed by stockbrokers who, Mr Dalli contends, have a vested interest in particular issues, especially in IPO's which they would be fronting, as well as in keeping the stock market moving in a certain way that would guarantee their revenue.
But Mr Dalli is quick to point out that he is in no way passing judgement on any particular event but is merely pointing out the fact that there is a void in the analysis of the local financial market.
Moving onto the media's responsibility in relaying proper information to the population he explains that even the media must avert the appearance of conflict of interest or misuse of the power and that it is an essential prerequisite for success in the news and information business that readers and listeners believe that the media, in our case the financial media and their analysts, are telling the truth.
Mr Dalli warns that if the truth is not being told then the Stock Exchange would not be able to prosper. It will suffer, for example, if investors cannot assume that: facts are accurate and fairly presented; analyses represent the best judgements rather than particular preferences, or those of other sources, advertisers or information providers; and that opinions represent only independent editorial philosophies and that there are no hidden agendas in any journalistic undertakings.
Mr Dalli additionally urges, in order to encourage the observance of standards, information providers should establish policies and guidelines to protect the integrity of business news coverage.
The impact of the work of the media particularly the financial media on the work of others, and on the lives and fortunes of ordinary people, Mr Dalli emphasises, places special responsibilities upon this particular sector of journalism.
This implies the acceptance of individual responsibility for following all ethical business practices, as well as the responsibility to stress proper ethical behaviour among colleagues and subordinates. Moreover, it must be made clear that integrity in reporting and analysis is necessary because of its impact on business decisions.
Business integrity, Mr Dalli explains, requires that we make all of our decisions and approach all questions objectively and realistically, in the long-term best interests of all investors.
Mr Dalli applauded the initiative being taken by the Malta Stock Exchange to begin a public education process that will develop further human resources in the financial field.
Dire need for the release of price sensitive information, company announcements VFM's Chris Borg
Mr Chris Borg
Valletta Fund Management General Manager Chris Borg, spoke on the role of the institutional investor in the local market. He explains that the role of a fund management company, particularly in our market environment, is to maximise returns and minimise risk through a combination of investments within the restricted parameters imposed on each fund and providing the right information which is timely, accurate and reliable.
Meanwhile, Mr Borg explains that investment decisions are very often based on historical information, such as that extracted from financial reports and newspaper articles, and information that relates to present and future business decisions - which will have an impact on the financial as well as on the managerial and operational sides of the company.
Mr Borg explains that, while historical information is available to one and all and that the market price would normally already be reflecting such information, information relating to how the company is performing in relation to its projections, future strategic decisions etc, would normally not be available to the public at large.
In today's rapidly changing economic and political environment, Mr Borg explains that the successful management of an investment portfolio demands constant supervision and accurate information.
He explains that portfolios need to be widely diversified and actively managed, although, in Malta, this is not always possible particularly with the absence of market makers.
Fund managers, Mr Borg emphasises, have an obligation to investors to get as much information as possible in order to be able to take informed investment decisions, but can they absolutely cannot rely on someone else to do their research for them? He explains that VFM's policy is to conduct their own research together with our investment advisors. Regular company visits are carried out to review performances and compare with targets and to ensure that our investments are well placed and, based on these visits they decide whether to change asset allocations and by how much.
Mr Borg contends that institutional investors should be given information that helps them in their decision making process and that companies should be more transparent than they are. He explains that experience has proven that companies wanting to enter the market for the first time are keen to provide enough information, however, once they are on the secondary market they become reluctant to provide the information to follow up their progress.
Price sensitive information that might have a significant effect on a company's share price should be made available to the general public such as dividend announcements, board appointments or departures, interim and annual results.
However, Mr Borg explains that he has never seen company announcements relating to profit warnings, share dealings by directors or significant shareholders.
Mr Borg makes reference to the fact that the more specific the information is, the greater the risk of it being price sensitive. Accordingly, when VFM carries out its company visits, they do not expect to be given sales and profit figures, for example, but they do expect to have a useful dialogue with the company's management about the present market situation, how and why there are certain price fluctuations, the business environment and their medium and long term strategies.
It is based on these discussions, coupled with financial information already available to the public, that VFM, as fund managers, base their investment recommendations.
Turning to the media's role in the supply of information, Mr Borg contends that the local market is not large enough to allow for financial analysts. He additionally contends he doesn't foresee the media filling the void either.
To overcome this problem, Mr Borg explains that it is more important to have regular statements made by a company's management relating to their position and that Malta needs to introduce more regular communication updates relating to the trading positions and immediate company prospects.
Companies can do this on a quarterly basis, in order to speak about their accounts and profit statements at the end of each period a practice that is especially helpful when market expectations are out of line.
These statements can simply include a few key financial figures and an explanation of the underlying trading conditions as well as the company's overall performance and any variance from previous statements.
Mr Alfred Mallia
15 listings expected in nine months, Exchange to up investor education Alfred Mallia
Explaining that the Maltese financial market has grown substantially over the last 10 years since the birth of the Malta Stock Exchange, Malta Stock Exchange Chairman Alfred Mallia highlights the fact that the Exchange has come a long way in fostering the mentality of investing rather than saving, while making similar strides in pushing the going public attitude in Malta's companies as opposed to the previously closed and private stance.
The results are there for all to see, Mr Mallia explains, adding that it suffices to say that at the moment the Exchange has in front of it a list of no less than 15 new issues during the coming nine months.
However, he stresses the fact that much more still needs to be done, with all parties concerned needing to make a concerted effort to do more, as each has an important and decisive role to play.
Mr Mallia emphasises that the Exchange does not at any time advise, analyse, or recommend any investment. Its role is to make available a trading platform and to ensure that the information and going out to the market is complete, clear and transparent as to enable the investor to analyse that information be able to make a well informed and intelligent decision.
Every investor has his own personal objective, Mr Mallia contends, whether it is long term investment, capital growth or short term return - he must have the correct information to be able to take decisions consistent with those objectives.
The Exchange strongly believes that investor education is the key to investor protection. With this aim in mind, it has embarked on a number of projects aimed at raising the level of public awareness of the role of the Exchange and its operations and the interpretation of information coming to the market.
While making reference to the establishment of the Capital Markets Group - with the aim of generating open public discussions on items of general interest relating to the market Mr Mallia adds that the Exchange this year will be stepping up its efforts in this direction.
Apart from a number of educational spots on various TV stations, the Exchange is organising, jointly with the Institute of Bankers, an educational course intended for the general public. The course, which will consist of 12 lectures, held over a period of three months in Maltese, dealing with financial education at a very basic level. The material is already in hand and a number of staff members from the Exchange will be delivering the lectures in the evening.
The Exchange is also working on a project with the objective of improving the communication channels between the listed companies and the general public.
Referring to the obligation of companies making company announcements regulating the timely disclosure of price-sensitive information, Mr Mallia explains that the measure is obviously very important because the two objectives which underpin the continuing obligations for listed companies are the timely disclosure of information and the equal treatment of investors.
The objectives are not only designed to ensure an orderly market, as required by the Stock Exchange Act, but also to protect the interest of investors, both those active in the market as well as those who are potential investors. These rules are also to the advantage of companies because they help create the investor confidence which is a clear prerequisite for share trading to take place, Mr Mallia comments.
However, Mr Mallia stresses that investor relations between a company and its investors should be more than this and that the relationship between the listed company and the investment community should involve a two-way communication process. The company should be ready to provide to the public a clear and true picture of its performance and prospects whilst gaining feedback from the market to help it plan and execute its strategy. In Malta, to my knowledge at least, the only direct contact that companies seem to have with the investment community apart from the issue of company announcements, is in their AGMs.
Mr Mallia announced that the Exchange will be proposing to listed companies the holding of regular meetings with both institutional investors managing pooled funds as well as with private investors who are investing their own cash into the market. The Exchange is working on this project and will be giving details to listed companies in the near future.
In this context, Mr Mallia refers to the number of broker firms that have taken it upon themselves to publish studies made in-house relating to listed companies' results and performance. That brokers set up their own research divisions capable of producing in-depth and independent analysis is, he feels, a practice to be encouraged.
In theory, Mr Mallia believes that it should be an ongoing function of corporate stockbrokers to publish regular research on their client companies to help stimulate trading. Howeeverm he questions how independent this type of research can be.
Therefore, Mr Mallia contends, it is very important for a company to achieve as broad a coverage as possible by other analysts who are not seen by the market as "tied up" in any way with the company itself. At the same time, it must also be remembered that we are operating in a very small market with all the problems that this brings.
We are all aware of the central role played by equities market analysts in markets abroad in setting "public expectations" of a company's future performance. I feel that this sort of specialisation is still missing in Malta even though, as I said, certain brokers are making an effort to train people in this direction.
According to Mr Mallia, this is where the media has to play a central role. The media is, of course, not an audience in itself but a prism through which market participants can project their message. However, Mr Mallia emphasises, the media is subject to a wide range of commercial and professional influences adding that, in the financial sector, the media has generally printed and aired what market players wanted to see printed and aired.
He laments the fact that the media has failed to fulfil the role of opinion builders, commenting intelligently and objectively on the various developments that regularly take place in the market. Instead, according to Mr Mallia, the media has more often than not played second fiddle to politicians rather than providing its own objective analyses of the issues, commenting objectively and leading in the formation of public opinion.
Mr Mallia contends that the market badly needs quality financial journalism and more newspapers or other publishing houses who are prepared to take on these pressures because they believe that the public wants to have high quality financial information and analysis.
While explaining that Malta's financial institutions are top class, with a strong set up with internationally accepted organisation, they are also flexible, effective and efficient, these institutions do not live in a vacuum - they live in a developing society.
They need the everyday contributions, the unequivocal support, the objective criticism of the media and of the whole society in general.
Mr Mallia finalises that we cannot remain in a situation in which every step and every move is interpreted through the politicians' myopian glasses - with the media hopping onto the same cart.