Nervous selling as Irish market hits a 12-month low
Major players due to report series of critical interim results
AS the Irish stock market hit a new low for the year on Friday, dealers in Dublin are braced for a possible wave of nervous selling this week.
Ahead of a series of critical interim results starting tomorrow, stockbrokers are still reluctant to call the bottom for Irish shares which have been hit by a stampede of sellers prompted by a fresh lack of confidence in the prospects for economic recovery.
Mark Roche, senior dealer at top stockbrokers Merrion Capital, puts the falls down to two principal reasons: "First is the bigger picture on the global bond markets where there has been a negative perception towards Ireland. Weak sentiment and wider spreads in the bond markets are bad for financials. This has had a detrimental effect on bank shares in Dublin. On top of that, Central Bank Governor Patrick Honohan's remarks about the increasing cost of the bailout has meant that the perception of Ireland overseas has suffered.
"Secondly, locally three companies drive the market. CRH, making up a giant 26 per cent share of the Iseq, was down nearly 15 per cent last week after bad results from its peer companies overseas. Although this is a sectoral problem with construction in the doldrums, a fall in CRH has a huge effect on the Iseq."
CRH is only one of a long list due to report interim figures to a nervous Irish market this week. Half-year figures are also due from Kingspan, Aer Lingus, Glanbia, Paddy Power, Tullow, FBD and Independent News & Media. One of the few brighter spots in the market, the Kerry Group, is due to release figures on Friday.
Oliver Gilvarry, head of research at Dolmen stockbrokers, puts the falls in the Dublin market down to "the reduced forecasts for growth in both the US and the UK. We had been expecting a 3 per cent growth in the US next year but now it is closer to 2 per cent. In the UK it is expected to remain flat at around 1.5 per cent.
"The slower growth expectations have fed through to our equity markets, especially as we are export-led."
Dolmen believes that there is still value in some equities. "With bond yields low, corporates are finding it easier to fund expansion. Food stocks are likely to benefit. We like Kerry Group. As markets begin to accept the lower growth forecasts in the next two weeks, shares could stabilise. Remember there is still positive growth out there," adds Gilvarry.
More specifically, Dolmen prefers the prospects for Bank of Ireland over AIB. "We have preferred them over AIB for a long time as they have recapitalised and there remains a great deal of uncertainty over AIB's funding programme."
Another note of optimism was struck by Merrion's Roche: "If the reporting season is reasonable we can go ahead despite the certainty of austerity measures in the December Budget. CRH is now below its book value."
The collapse of Irish bank shares has revolutionised the Irish market. At Friday's close, they made up less than 10 per cent of the capitalisation of the Iseq but back in the heady days of 2007, the banks made up nearly 40 per cent.
And on Friday night, Central Bank Governor Dr Honohan told a news conference in Tokyo that the banking system here had improved but that investors were demanding that the future of Anglo Irish Bank must be resolved as a move to restore the confidence of global investors.