Article By Kieran Degiorgio
Maltese capital markets are set to experience a tidal wave of issuance over the upcoming months, with a multitude of issuers seeking to finance upcoming projects, re-finance upcoming maturities, or a combination of both through local savings.
By and large, the local corporate bond market, which has been a hot topic as of late, remains undoubtedly attractive. Malta’s macro-economic backdrop is set to continually support the fundamental performance of issuers across sectors, while credit spreads, generally speaking, are wider across tenures for local issuers when compared to European peers or broad-based market indices, making valuations more attractive.
It hasn’t, however, been all roses and sunshine, with a few seemingly bad apples falling in the spotlight over the recent past amidst concerns over liquidity and financial strength, prompting a continued increase in the probability of local markets registering their first corporate bond default.
Opinions have been divided with both sides’ arguments warranting merit. Some have argued for increased regulatory scrutiny of issuing companies and heightened investor protection, others deem a potential default beneficial to local markets longer term, serving as a due diligence wake-up call. Finance Minister Clyde Caruana recently remarked that defaults are part of the risks faced by bond investors, factual, whether one agrees with the timing and directness of such comment or not, with the risk of capital loss clearly stated on the initial pages of bonds’ prospectuses.
The conclusion to be reached from this situation, one which all parties should easily be in agreement with, is the need for a higher level of inspection and financial literacy across the local investing public. Recent worries highlight the importance of one doing his homework, on his own if technically knowledgeable, or ideally, under professional advice and stewardship.
Referencing my earlier comment of the local corporate bond market being attractive from a top-down perspective, without going into specifics, it is clear that while some issuers approach the market in fairness, pricing risk at what would be widely deemed a sensible level, others seem to tilt the balance a bit too much in their favor, managing to obtain debt financing locally at levels which are much cheaper than if these bonds where to be marketed internationally.
And it is here, in the specifics, in the selection, where the importance of professional financial advice takes center stage, helping investors steer away from unduly rewarded risks and towards issuers and issues which present more attractive risk-reward profiles.
While this doesn’t eliminate the likelihood of being exposed towards what turns out to be a bad apple, it surely diminishes the chances of it.
One must also be appreciative of the array of considerations, both qualitative and quantitative, to be made when analyzing a company’s financial performance and its future prospects, in what quickly becomes an intricate puzzle as the overall attractiveness of an investment profile is assessed.
Future growth across a company’s business lines, its competitive position versus peers, underlying cost pressures versus the ability to consistently generate free cash flows along with profitability margins and expectations in such regard are all key inputs to assessing an entity’s quality and sustainability of earnings, to name just a few.
Other key considerations, which are imperatively important in the context of fixed income investing, such as balance sheet strength, a company’s liquidity and solvency position, leverage and sources of funding along with interest coverage must also be carefully analyzed and modelled through time.
An investment, even though potentially attractive in singularity, is then ideally looked at against an investor’s broader portfolio and sources of wealth and income, while also being mindful of the individual’s ability and willingness to bear investment risk.
The information is there for those willing to look at it, with the Maltese Stock Exchange’s recently announced new investor portal, www.investi.com.mt, set for launch in January 2026, further improving ease of access. It is clear, however, that the costs of active management and financial advice, when done right, are heavily outweighed by the benefits, with a trusted guide materially increasing the chances of successful navigation through financial markets.
Opportunities are, as such, aplenty for the well-informed, well-advised investor, with the threat of persistently higher inflation ushering an even greater need for capital protection and appreciation. Get informed, get invested!
Kieran Degiorgio is a Senior Portfolio Manager and Research Analyst at Curmi & Partners Ltd.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.