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Diversify now Back  
Irish equities have performed extremely well over the past ten years, and have returned 29.1 per cent in the 12 months to December 2004. Driven by high-performers such as Anglo Irish Bank, the ISEQ out-performed all other markets in 2004, with its nearest rival being Pacific (ex-Japan), which returned a more modest 16.5 per cent.
With the Irish economy still going strong, and predicted growth of around 4 per cent in 2005, the outlook for the Irish equities market would seem good for the rest of the year, with the most obvious threat to Irish exporting companies being the weakness of the dollar; but this is shared by all other companies in the Eurozone who do business in the US. So while returns of almost 30 per cent may not be achieved in 2005, Irish stocks still look solid enough. Why then does Grainne Alexander on page 9 recommend reducing ones exposure to Irish stocks? Her argument is based not on the idea that the ISEQ has plateaued and the only way forward from here is down, but rather on the concept of geographical diversification. She argues that post-euro the percentage of Irish stocks held by Irish pension funds has steadily decreased from the 30 per cent level held in 1998. However, the recent out-performance of the Irish market has meant that Irish managers are increasingly over-allocating to Irish equities, and the percentage held in Irish equities is now back around the 20 per cent level. The problem with this she says, is that Irish funds are now ‘unbalanced’ in terms of an excess allocation to Irish equities, as the Irish market only represents 0.3 per cent of the world index, and that greater allocation to the bigger markets is needed.

This is something that should be borne in mind also by individuals, as geographical diversification is an important part of any portfolio, and over-exposure to the Irish economy, particularly when one considers that most of one’s income hinges on the performance of this economy, can be dangerous.

Despite extra-ordinary returns by Irish equities in 2004, it is interesting to note that in Mercer’s Fearless Forecast, which represents the thoughts and views of 55 pan-European and 33 global investment managers on the economy and capital markets, (see page 8) Ireland is not chosen as one of the most attractive equity markets for 2005. Rather the top markets are predicted to be Japan and the United Kingdom, with the least attractive being the United States and Germany.

Corporate finance
With Irish stocks doing so well, and Ireland’s two most recent public companies eircom and C&C also doing well since their flotation in 2004, it may be surprising to learn that on page 4, Peter Crowley, managing director of IBI Corporate Finance, writes that there are no obvious contenders to go public in the near future, apart from take-privates such as Smurfit who may return to the market. However, the launch later this year of the Irish Stock Exchange’s smaller companies market should see a new flow of companies, who may previously have looked to London’s Alternative Investment Market, going public in Ireland.

International financial services
On page 6 Paul Reck of Deloitte summarises the key findings of a report his firm conducted for IDA Ireland on the ‘Future of the International Financial Services Sector in Ireland’. He writes that the outlook is very bright, particularly in the funds and banking sectors, and identifies a host of opportunities for the sector going forward. As Ireland now has to compete with true low cost centres such as Eastern Europe and India, it has become more important than ever that Ireland continues to offer firms competitive advantages, be it through low costs, skilled staff, flexible working environment or something else. At the forthcoming Sixth Annual Finance Dublin Conference, the Deloitte report, and the opportunities/threats facing Ireland as an international financial services centre will be discussed in detail. Case studies from companies which have used Ireland as a location for front-office activities, including Pioneer Alternative Investments and Susquehanna Ireland, will also be presented on the day. (For more info see http://www.financedublin.com/conference/home.php)

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