Going it alone on investment apps is risky money

The advent of online investment platforms and apps may have provided much-needed new investment opportunities for Maltese investors, although stockbreaks are urging caution.

Investment advisor Michael Grech has warned that many people have lost sizeable savings after playing the market on widely advertised mobile phone apps to invest their money themselves, bypassing financial advice.

“The advent of online investment platforms, becoming much easier to access, is clearly creating a shift in investment patterns, but nothing beats the direct one to one contact between the investor and his advisor,” Grech said. “Such platforms, especially if they offer a leverage opportunity, can be quite dangerous for investors and it is not the first time that we have seen investors turn into gamblers and get burnt out quite easily using these platforms.”

Online investment platforms and apps gained a lot of traction in 2020 as people avoided face-to-face contact in the COVID-19 pandemic, shunning meetings with their stockbrokers or financial advisors.

Grech said the appetite for investment had been tempered by limited local investment opportunities in 2020, with the propensity for saving growing due to job uncertainty. “Most Maltese investors prefer income generating instruments like government stocks, such as the 62+ issues, local corporate bonds and local and international bond funds,” he said.

With the pandemic certain investors took action to dis-invest themselves from sectors they perceived could be severely hit by the pandemic. A case in point were Malta International Airport shares, which suffered heavy losses in 2020 but have since recovered much of the said losses.

But many investors complained of a weak local offering on the Malta Stock Exchange, leaving them no option but to invest abroad or in bonds. “It is true that on the MSE there is a substantial amount of holdings in hotels and real estate, and such a concentration might not be too healthy because if there is a correction in a sector, it would probably hit all the issuers in that sector,” Grech said.

“Brokers and investment advisory firms will always warn clients of the risks associated with having too much money in one particular investment, but the truth is that there is too much money chasing few investment opportunities. Most bond issues are normally oversubscribed within a few hours of opening.”

Joseph Portelli, chairman of the Malta Stock Exchange, however says the MSE has a good balance of equities, corporate bonds and government securities where the public can invest. “For a small exchange, we have a very sophisticated capital market. Over the last five years we’ve introduced REITs, affordable SME financing options, and we will soon be introducing green bonds. We also list bonds and equities of companies representing a myriad of industries including technology, gaming, telecommunications, leisure, banking and insurance, real estate, transportation, oil and gas, amongst others.”

Portelli confirmed that the economic uncertainty brought about by COVID-19 had created an environment where raising capital was more challenging.

Trading volumes last year plummeted by as much as a third when compared to 2019, while the Exchange managed to increase its operating income by controlling expenses.

Grech says investors looking for income will continue to invest in bond issues as long as they see some kind of guarantee or security and that they are being fairly compensated for the risk being taken.

As to the months ahead, Portelli and Grech agree that 2021 should be challenging – but interesting. “On one side we have a huge amount of compliance pressure coming from the regulators on matters like Moneyval, the Greco report and the Venice Commission,” Grech said. “Having Malta grey- or black-listed would have a devastating effect on the gaming and financial services industries.”

He said that other external factors – such as Brexit, a new US president, and China emerging as the world’s biggest economy by 2028 – might exert more pressure on Malta’s economy.

“I am confident that Malta as a country will be able to start to make a turnaround in the second half of this year with better prospects for all sectors,” he said.

Portelli, too, was upbeat. “We are optimistic 2021 will be a record year for the exchange considering there is a significant pipeline of new issues which we are anticipating. “Although online trading has become very popular, receiving quality bespoke, financial advice from the stock brokerage community is invaluable and is a service which will be demanded by the investing public for decades to come.”