Nine months after ISEQ record highs, Irish shares likely to underperform other markets for sometime

Analysis/Comment
Nine months after ISEQ record highs, Irish shares likely to underperform other markets for sometime
By Michael Hennigan, Editor and Founder of Finfacts
Nov 21, 2007, 10:44

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CRH is Ireland's biggest public company by market value - - CRH Chief Executive Liam O’Mahony rings The Opening Bell on April 4, 2006 at the New York Stock Exchange. CRH is the largest US building materials group.

February 21, 2007, nine months ago today, the ISEQ index rose to an-all time high of 10,041 and the Financial sub-index rose to 18,098.

Bank of Ireland closed at €18.65; Anglo Irish closed at €16.64 and AIB closed unchanged at €23.95.

The general index is down 36% and the financials' sub-index has plunged 48% from the February highs.

Bank of Ireland is trading today at €9.24; Anglo Irish is at €8.74 and AIB is trading at €13.11.

The Irish market has not only underperformed the big economy markets which are still generally trading up but also most Emerging Markets.

The Nasdaq is up over 9% year-to-date, the Dow Jones over 4% and the S&P 500 at about 3%.

The Morgan Stanley Capital Index for Emerging Markets rose nearly 50% in the first 10 months of 2007 and has delivered very strong performance over three-year and five-year periods with annualised returns of 45% and 40% respectively, through October 2007.

The bearish sentiment towards Irish equities may be surprising because while the Irish economy has been over-dependent on construction, in the short-term, the economy is expected to continue growing albeit at a much lower level.

Irish shares outperformed other markets when the principal companies produced double-digit earnings growth for their mainly International stockholders.

Last June, we wrote about the trend in recent decades of the growth in overseas ownership of most stock markets. In Ireland, overseas investors own about 65% of AIB Bank and the outperformance of the Irish market in recent years will be matched by underperformance for the foreseeable future.

International investors will simply have more upside opportunities elsewhere, in particular in Emerging Markets.

The Irish stock market is small with 7 companies accounting for 73.5% of the market capitalisation.

On Nov 21,2007, CRH, the second biggest building materials supplier in the world, hold 15.8%; Banks - AIB, Bank of Ireland, Anglo Irish Bank and Irish Life & Permanent hold 15.1%, 12.1%, 8.5% and 4.3% respectively. Drugs firm Elan holds 9.1% and Ryanair, Europe's biggest low-fares airline has a 8.6% market cap share.

National benchmarks - Europe

Irish Share Prices

Irish Stock Exchange summary on 2006:

The Irish equity market performed exceptionally well in comparison with global markets, and the 28% increase in 2006 in the ISEQ Overall index outperformed indices such as the Eurostoxx 50, FTSE, NASDAQ and the Dow Jones Industrial Average. The index reached a lifetime high of 9453 on 28th December.

The ISEQ sub-indices also reached their lifetime highs in December with the ISEQ Financial, General, Small Cap, ITEQ and ISEQ 20 indices gaining 25%, 30%, 34%, 44%, 28% respectively this year.

The market capitalisation of companies on the ISE grew to €119.3 billion in 2006, an increase of 26% on the prior year total of €94.7 billion. The ISE saw equity turnover grow to €129.2 billion in 2006, a 19% increase on the 2005 total of €108.8 billion and average daily turnover for 2006 was €511 million. The fourth quarter saw a 29% increase in average daily turnover to €555 million when compared to the 2005 daily average of €430 million.

Irish Stock Exchange summary on 2005:

The Irish equity market continued to perform strongly against global markets, and the 8% increase in the fourth quarter in the ISEQ Overall Index outperformed global indices such as the FTSE 100, Eurostoxx 50, NASDAQ and the Dow Jones Industrial Average.

The 2005 increase of 19% brought the ISEQ Overall index to a lifetime high in December, and this was subsequently exceeded in January 2006. The ISEQ sub-indices performed well with the ISEQ Financial, General, Small Cap indices gaining 22%, 16%, 50% respectively this year, or 16% in the case of the ISEQ® 20 since its March launch. The ISEQ Financial, Small Cap and ISEQ 20 also reached their lifetime highs in Q4, 2005.The market capitalization of Irish equities traded on the ISE grew to €94.8 billion in 2005, an increase of 16% on the 2004 total of €82 billion.