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Thursday, 25th April 2024 |
| How the Irish markets fared in 2001 |
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| Over the past twelve months, the environment has changed utterly. A reprint of the previous edition of the guide to Irish financial markets simply won’t do. Some rewriting is required and John Keilthy does that. |
For several years up to and including the year 2000, there had been little need to update the investor’s guide to Irish financial markets. The landscape hadn’t changed much. The economy had been performing well. There were plenty of scenic treats and very few mean streets, so to speak. It was a relatively safe place to invest.
Ireland seemed to be successfully ploughing its own furrow, almost oblivious to the outside world. The island economy was a popular destination for both domestic and foreign fund managers. That was up until the beginning of 2001.
The once familiar sights and sounds that characterized the habitat of the ‘Celtic Tiger’ have become strangely muted. The tiger’s traditional territory the new car sales rooms, the bulging property supplements, the share registers of the hottest dot.coms are eerily silent. The new route map for the economy will take you off the beaten track to previously unheard of places of historical interest and includes a precarious international leg to the journey.
But all is not lost. Far from it. Despite the setbacks, Ireland continues to represent an attractive destination for investors. The going maybe tougher but the rewards are still worth it. Of the many and varied recommended stop-offs points, the following represent some of the most popular of 2001.
An isolated Bush
Not the African or Australian outback but the second-generation Texas version. George W Bush assumed the presidency of the United States in January. From the start the omens were not great. ‘Recessionary fears on Wall Street as Bush takes office’, announced one newspaper headline at the time.
Untried and untested, Bush had taken possession of the oval office just as the US economy was heading for the cliff at least as some would have us believe. The world had become even more dependent on the US consumer as an economic prop. And when that did not always go according to plan, the financial markets had become dependent on Alan Greenspan, the septuagenarian chairman of the Federal Reserve, to wave his magic wand and make the problem go away.
But this time it was different. Even the wizard of Wall Street couldn’t pull the proverbial rabbit out of the hat. Following an unprecedented series of interest rate cuts over the past twelve months, the US economy struggles to keep its head above the water.
As for Bush, his early isolation has had to give way to a more inclusive approach to the international community following the events in New York - uncharted in the annals of American history.
Looking to the future, the sum of the events of 2001 are likely to lead to a recovery in the US economy in 2002 and probably sooner that most observers expect.
The stimulatory effect of US interest rates at or below 2p.c. should see to that. But more than that, Bush’s aggressive tax cuts will provide further support. At the same time, the dollar, which has defied gravity, will eventually succumb to the inevitable consequences of high balance of payments deficits and end the year lower.
The Cooley mountains
Nestled along the banks of Carlingford Lough is the Cooley peninsula. Famous for its striking scenery, the area has never featured on the economic map of Ireland. But that all changed in the springtime with the confirmation of an outbreak of foot and mouth. The news was devastating.
The prophets of doom would have had us believe that our number was up. It was curtains for the Irish economy. The short-term prospects for tourism and agribusiness were indeed particularly gloomy. The stock market reaction was predictably swift and uncompromising. banks, hotels and agri-stocks were marked down sharply. On top of mounting job losses in the technology sector and the general global economic gloom, it seemed that the only place to be was in cash. But this far removed, what’s the legacy of foot and mouth?
Certainly, the tourism sector has endured a very difficult year with UK inbound traffic especially weak. But tourism accounts for less than 5 percent of the general economy, so the wider impact has been more muted. In relation to agriculture, recently published CSO numbers indicate that both agricultural incomes and output grew over the past year by over 5 percent and 1.5 percent respectively. Verdict: A serious setback for tourism but not a disaster for the economy.
Baltimore where rough seas wreak havoc
For many people Baltimore, County Cork represents the ideal summer retreat. Relaxation; an ideal getaway from the helter-skelter; a timeless old-world community. But there is another Baltimore one that represents an altogether different memory for many investors.
The Dublin-based technology company, once the darling of the stockmarket, is but a shadow of its former self. And for investors the roller coaster ride has been of truly frightening proportions. The peak (Stg?13) was around the time of Baltimore’s admission to the hallowed grounds of the FTSE 100. No mean feat for a company barely in existence in terms of quoted stocks.
The bottom came a short eighteen months later in the late summer of 2001 when the shares hit a low of Stg13 pence. For investors, the lessons have been harsh. Technology is important but it has to be proven. It also has to make commercial sense. Also, technologists don’t always make the best managers. Finally, the fundamentals will eventually assert themselves. Profitability cannot be a hazy aspiration to be achieved sometime into the distant future. It must be capable of being within investors grasp.
The Twin Towers, New York
For decades New York has had a positive influence on the Irish economic landscape. As a departing point for hundreds of thousand of American tourists who visit our shores annually, the most famous US city has certainly played its part in supporting Irish tourism.
But on September 11th, New York was the catalyst for one of the most dramatic days in recent history. As two hijacked aircraft ploughed into the Twin Towers the resulting carnage was on an unprecedented scale. And so too was the immediate impact on the markets.
But once the emotion subsided and rational behavior returned, investors recognized that the reaction had been overdone. The subsequent recovery in the stockmarket has resulted in the retracing of all the ground lost in the hours and days following the attacks. For future reference, the darkest part of the night is just before the dawn.
The Valentia lifeboat
Valentia Island, off the cost of County Kerry, is famous for, among other things, the fact that it was the starting point for the laying of the first transatlantic telegraph cable. Some 140 years later and Valentia is once again associated with global telecommunications through the Irish/US consortium’s successful takeover of Eircom.
For 300,000 Irish retail investors, their experience of privatization has undoubtedly been colored by the performance of what, for most, was their one and only direct equity investment.
Eircom represented their entire portfolio, which meant that they carried a high level of stock specific risk, whether they knew that or not. Eventually, after only a short period in the black, the shares succumbed to the downdraft, which had infested the global telcoms sector through 2000 and into 2001. While rescued in the end, it wasn’t without pain for many investors. |
John Keilthy is group chief operating officer at NCB Stockbrokers.
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| Article appeared in the January 2002 issue.
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