Monday 23 October 2017

Concerns about government debt drag ISEQ down

Peter Flanagan

Peter Flanagan

IRISH shares slumped yesterday, as increasing concern about the ability of Ireland to service its debt, combined with the removal of one of the banks from a leading index, drove markets down.

On the day, the ISEQ Overall Index closed down 1.58pc, or 42.51 points, at 2,703.28. That represented a loss for the week of about 2.8pc, having opened on Monday at 2,780.60.

The banks led the market down after the yield on 10-year government bonds blew past 600bps -- the biggest in the eurozone outside Greece -- and the spread against German Bunds hit a record 385bps.

Barclays Capital published a report suggesting that Ireland would have to seek help from the European Union or the International Monetary Fund. "While the Irish treasury doesn't have any immediate liquidity needs, the colossal fiscal effort that will be required to stabilise the public debt over the medium term leaves little fiscal space to deal with any further unexpected financial sector losses,'' said the report.

"Should further unexpected financial sector losses or macro-economic conditions deteriorate... the Government may need to seek outside help," it added.

Nevertheless, Bank of Ireland fell 7.07pc to 62c while Irish Life & Permanent slipped 3.73pc to €1.55. Allied Irish Banks plummeted 11.05pc to 62c after it was removed from the Europe-wide Stoxx 600 index. Removal from the index, which was confirmed last night, forced several institutional investors to remove the stock from their portfolios.

Pharmaceuticals giant Elan slid 1.17pc to €3.71 after two dissident directors agreed to resign from the company board and a report by a US law firm found no illegal practice by Elan. It did, however, make a number of recommendations to the board in relation to US reporting requirements.

Few stocks finished in positive territory, but oil and gas explorer Dragon Oil defied the rest of the index, closing up 4.78pc at €5.44.

Across Western Europe it was a mixed day, with 11 of 18 benchmark indexes falling. France's CAC 40 declined 0.3pc, the UK's FTSE 100 lost 0.5pc and Germany's DAX Index dropped 0.6pc. The Stoxx 600 fell 0.1pc.

"While the economic data remains mixed, the market's focus will remain on the macro environment until we get to the earnings season in October," said London-based James Buckley, a fund manager at Baring Asset Management.

In London, Barclays dropped 3.2pc as UBS cut earnings estimates for Britain's third-largest lender for the next three years.

Irish Independent

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