Lack of investment options leading to over-subscription of equities and bonds

The lack of attractive investment opportunities in Malta is leaving investors no other option but to subscribe to equity and bond offers, irrespective of their return prospects, a leading stockbroker has warned.

Paul Bonello, Managing Director of Finco Treasury Management Limited, told BusinessToday that many stockbrokers appeared to be more interested in securing a commission rather than guiding their clients towards solid investments offshore.

He said that the renewed activity on the Malta Stock Exchange was to be expected, after the COVID-19 pandemic had put on hold many companies’ plans to issue bonds.

“Unfortunately many people, including the elderly, have very few options where to invest their money,” he said. “It is therefore no surprise that we are seeing increased activity in equities and bonds.”

In the past few weeks alone, Hili Properties launched an IPO aiming to raise €49 million. €30 million will be utilised in terms of an acquisition of immovable property in 2022, whilst €19 million will be utilised to partially finance a property acquisition in 2023.

Days later, IHI Group announced an €80 million bond issue that it says is aimed at funding Corinthia Group’s new Hal Ferh project and the restructuring of a number of the Group’s hotels, among others.

And applications for the government’s 62+ bonds reached over €134 million within hours of being announced, when the original sum of issue was of €65 million.

Meanwhile, AX Group has announced that one of its subsidiaries - AX Real Estate Limited - is in the process of being converted into a public limited liability company (“AXRE”) and that the company will be issuing €40,000,000 in 3.5% unsecured bonds of a nominal value of €100 per bond, redeemable in 2031.

“People have money to invest and but it is obvious many are not being guided well as to where to put it,” Bonello said. “If more stockbrokers and advisors were to provide good guidance to their clients, we would not see this level of activity in what are, at best, risky bonds and equities and, in the worst cases, downright failures.”

He said that, themselves not knowing any better, many investors were putting their money in bonds and equities that were very risky and provided little, if any, return.

“We’ve seen a number of bond issues tank in the recent past, and we are bound to see more of the same,” he said. “If people are really set on investing in property as a financial product, they should go on the international market and buy into exchange-traded funds where the risks are lower and the profits are larger.”

Another stockbroker agreed. Maltese investors should learn to diversify their investments and not dump all their savings into one stock or bond, he said.

This was linked to another shortcoming of the MSE Index: a lack of diverse offerings.

“Maltese share listings are primarily tied to property, real estate or banks and finance houses,” he said. “We lack the tech startups, comms companies, and tourism and holiday-related companies that one finds listed in all top stock exchange indeces worldwide.”

Unfortunately therein lies the problem, in that while investors are hesitating to keep dumping money into property shares and bonds, most companies are reluctant to float on the MSE when there was so little activity.

BusinessToday spoke to a financial analyst, who agreed with this assessment.

“Unfortunately, the gamut of local investment opportunities is what it is, and the situation has not been made any better with the issue of government bonds,” the source said.

In fact, government was currenly limiting bond issues to plans like the 62+ scheme.

And because these are heavily over-subscribed, investors were quite limited into how much they could invest, and how often, in these bonds.

The latest 62+ Malta Government Savings Bond attracted a huge by the time the call closed in October. The total value of applications reached almost €134 million, when the sum on issue was of €65 million subject to an over-allotment option of an additional maximum amount of €35 million.

The Treasury announced it would exercise the option so as to increase the allocation up to a maximum of €100 million.