- FOURTH YEAR OF STRONG RETURNS ANTICIPATED
- SSIA SPENDING SPLURGE GOOD NEWS FOR EXCHEQUER AND FOR IRISH EQUITIES
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| HIM is one of Ireland's leading fund management companies, with almost €9 billion under management. Based in the International Financial Services Centre in the heart of Dublin's financial district, their experienced investment team covers all major global markets. |
Hibernian Investment Managers (HIM) presented details of its investment outlook, Focus 2006 today. The fund managers are very positive about prospects for the Irish economy in the current year against a benign backdrop, which includes stable Eurozone interest rates and the release of €16bn in SSIA funds from next May. Despite 2005 being the third consecutive year of double-digit returns, HIM envisage continuing growth in Irish and International equity markets, though at a slower pace than previously.
HIM is predicting Irish GDP growth of 5.2% this year supported by; strong employment growth, robust consumer confidence and retail spending, the resilient housing market and wage growth, exceptional strength in the public finances (to which SSIAs will also provide a boost) and stable ECB interest rates.
Economist Fiona Hayes said; “The ECB is expected to raise interest rates in 2006, though these will only rise modestly to around 2.75% by year end, which will be insufficient to impact on consumption or borrowing.”
HIM expects that the Exchequer could benefit by up to €1.5bn in both direct and indirect tax based revenue from the exit tax on SSIA savings, and increases in consumer spending including car sales, holidays and construction. This spending is also good news for Irish equities said James Forbes, Senior Investment Strategist; “Companies with direct exposure to consumer demand, such as Grafton and Independent News & Media should benefit from the inflows generated by the SSIA scheme”
For those considering reinvesting their SSIA funds, he added; “Equity based SSIAs are currently outperforming fixed-rate products by up to €2,000*. This highlights the value of regular long-term investment into real assets, and compares very favourably with the low deposit rates available in the market, which are significantly lower than the rates available at the outset of the scheme.”
Commenting on the prospects for International equity markets, Roy Asher, Chief Investment Officer, said; “Our optimistic view for markets in 2006 is underpinned by expectations of continuing global liquidity fuelled by cheap money, a positive upturn in the Japanese economy, and increases in mergers and acquisitions activity as some of the enormous cash reserves built up by companies in recent years is used to increase returns to investors, and ongoing growth in high end consumption.”
HIM was recently recognised by Standard & Poor’s as the leading provider of unit-linked funds in 2005. It currently manages €10bn of assets in Ireland. This will rise to €13bn following the completion last week of the joint venture between Hibernian and AIB creating the third largest pensions and long-term savings business in Ireland.
Investment Outlook Highlights
Globalisation is a powerful pro-business force that is driving growth (through increased trade) and maintaining profits at very high levels. This will continue in 2006 providing a positive backdrop for most markets.
The timing and extent of interest rate rises is crucial to markets this year. HIM anticipate that the actual interest rate increases and the impact on markets will be relatively limited.
Despite good appreciation over the last two to three years, equities remain reasonably valued as their underlying earnings and dividends have also improved. Relative to other asset choices (bonds, property and cash) they are also our preferred asset class.
Within equity markets our regional preference is the Eurozone; restructuring is happening at company level, particularly in Germany. Employment is recovering as profits are good and workers are adapting to the reality of globalisation. Continental consumers have yet to experience a ‘borrowing binge’ and associated spending from release of property gains – as has happened in Ireland, UK and US. There is no currency risk to investors while the region is less at risk from higher energy and other input costs than Asian markets.
The outlook for Ireland is still favourable as the economy is kept ‘hot’ ahead of the expected 2007 election. The risk of over-reliance on construction and sensitivity to higher interest rates is real but unlikely to be apparent until at least the second half of the year or later.
Bonds. Buying bonds at current yields remains quite poor value.
Commercial property exhibits speculative characteristics, which warrant discipline and the need for high quality earnings.
*based on an average monthly contribution of €190.00
