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Facility to short a winning factor for some in 2007 Back  
Equity Sales Trader of the year Laura Fitzpatrick on trading opportunities in 2008.
Looking back at 2007, the ISEQ experienced a 25 per cent decline in the second half of 2007 which proved to be a tough wake up call for all involved in the Irish market. A significant increase in daily volatility and wide trading ranges became a trend in 2007 that heightened the challenge for traders and sales traders. Hedge fund activity and leveraged positions have contributed to the increase in daily traded volumes and volatility. These trends have increased the challenge of maintaining a balanced book position but have also enhanced our ability and frequency in finding both sides of an order and ultimately crossing quantities of stock in-house.

The facility to short stocks was a winning factor for some in 2007 but a harsh limitation for long only funds. Identifying value and defensive qualities in equities in the current environment is integral for us and the long only investment funds.

Having outperformed for much of the early part of the decade, Ireland underperformed nearly all major indices last year. Volatility in the ISEQ increased quite dramatically (average volatility in the second half of 2007 increased to a 2.5 per cent daily range from a 0.9 per cent range in the previous five year period). Traders that had become accustomed to trading in a clear uptrend market and were happy to run long positions on the basis that the market consistently rose, felt the brunt of pain in 2007. It became apparent to us at Merrion that the market was moving from a €buy dips€ mentality to a €sell rips€ mentality.

Institutional clients with direct market access (DMA) increased in 2007 and this has meant that traders and sales traders are now required to add value in different ways. It is no longer just a case of working an order on screens but rather looking to cross stocks, thus providing greater liquidity and also to provide clients with a better feel for how a stock is likely to act.

What has been interesting so far this year is the resilience of the ISEQ compared to European counterparts. So far, indicators are suggesting that Ireland has taken the brunt of the correction in 2007. The decline of the second half of 2007 was difficult for long only funds and paradoxically; Ireland may now be seen as a safe haven that has limited downside when compared to the potential decline of peer markets.

We are confident that our consistent approach to execution and sales trading will support us in a potentially tough year ahead. It is likely that the trend of Irish equities will trade relatively sideways or with a slight decline in the first six months of 2008, weighed on by the economic state of the US. Nonetheless, the Irish market now boasts some value stocks and will persist to provide excellent trading opportunities.

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