| Foreign investment peril |
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| The fall in Irish equities in recent months has been exacerbated by a flood of foreign investment flowing out of the country, according to top stockbrokers. |
‘Irish companies are more recently learning the harsh lesson that international investment banks don’t care about this market. All the big international firms that have been courting Irish management during the good times have abandoned the Irish market at the first sign of weakness,’ said Conor O’Kelly, managing director at NCB Stockbrokers.
O’Kelly’s view is backed up by Robbie Kelleher, head of research and chief economist at Davy Stockbrokers. He said, ‘International investor concerns about a collapse in the Irish housing market and the subsequent knock-on effects into the overall economy have been the main factor behind the fall in Irish share prices.’
Kelleher also cites the diversification of Irish pensions finds’ portfolios as another reason for the market’s current travails. He said, ‘At the end of 1998, Irish pension funds had, in aggregate, some 26 per cent of their assets invested in Irish equities. At the same time, AIB and Bank of Ireland between them accounted for almost 40 per cent of the entire market capitalisation.
‘Hence a typical Irish pension fund held about 12 per cent of their entire assets in the two Irish clearing banks. That was a stock and sector specific risk that many actuaries felt uncomfortable with. The creation of the new eurozone enabled them to diversify their asset base away from Ireland without incurring an exchange rate risk.’
For Roy Barrett, managing director of Goodbody Stockbrokers, the recovery of the Irish market will be driven by an international base of investors. He said, ‘The recovery of the Irish market, when it comes, will be driven by a range of investors. It will not be an Irish phenomenon, but an international one – the vast bulk of investors in Irish equities are now based outside the country. They will, however, need to have a comprehensive knowledge of the Irish companies they invest in, and the capacity to execute their transactions effectively.’
In order for the market to bouce back, O’Kelly says that it will fall to brokers to restore confidence of international investors. He said, ‘The last six months have been a reality check and, as so often in the past, it is back to the local broking community to re-establish confidence in Irish equities with overseas investors. This will of course happen and new investors will emerge to take advantage of the undoubted value that currently exists in the market place.’ |
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| Article appeared in the December 2007 issue.
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