Business World

Friday 27 April 2018

May shares decline is steepest more than 25 years

Thomas Molloy

THE ISEQ benchmark overall index is on track to post its worst May decline since the index was created while Garret FitzGerald was Taoiseach.

The stock exchange's benchmark index has fallen 13.4pc so far this month. This is easily the worst fall in the month of May since the index was created in its present form in 1983. It is also the worst monthly decline since last October and a small dip today would trigger the largest monthly decline since November 2008 when stock markets around the globe went into freefall after the US government allowed Lehman Brothers to collapse.

Shares worldwide have seen some of their worst declines in decades this month as investors fret about everything from tensions on the Korean peninsula to the European Union's response to the Greek crisis and high borrowing elsewhere. Faith in Ireland has been shaken by a series of events from the effective nationalisation of the EBS Building Society to the prediction by economist Morgan Kelly that it is only a matter time before the country suffers a crisis similar to the Greek crisis.

Borrowing costs for the State are once again the highest inside the eurozone bar Greece. Portugal, which like Ireland has an AA rating on negative watch, briefly overtook Ireland earlier this month for 10-year borrowing, but Ireland is again paying the most after Greece.

Among the worst performers this month were the nation's banks. Bank of Ireland, which is engaged in a complex rights issue, tumbled 31pc while Allied Irish fell 28pc with shares in the bank falling 14pc in a single day last week. These are the worst monthly declines since October of last year when bank shares halved as the Government pushed through legislation to create the National Asset Management Agency.

The declines pose a risk for AIB's plans to raise €7.4bn within seven months -- plans which have not been helped as foreign banks ruled themselves out of buying AIB's 70pc stake in Polish bank BZ WBK. Failure to raise the money could lead the Government's share in the group rising to as much as 83pc.

"Allied Irish in particular is struggling because people are struggling to work out how they can raise their capital by the year-end with their share price where it is at the moment," a trader said told Reuters after last week's 14pc plunge.

Shares elsewhere have suffered an equally torrid time. The Dow Jones Industrial Average is set to post the biggest May decline since 1940 on concern that the debt crisis is spreading from Greece to major nations such as the UK and the US. The index lost 8.2pc so far this month, the worst monthly decline since February 2009.

The euro's slide against rival currencies this month, for many of the same reasons, is headed for a sixth monthly loss against the dollar. The 16-nation currency fell further on Friday as Fitch Ratings stripped Spain of its AAA credit grade, saying the nation's debt burden is likely to weigh on economic growth.

"The crux, core problem is incredible indebtedness in the peripheral countries" of Europe, said Win Thin, senior currency strategist at Brown Brothers Harriman in New York. The €750bn aid package agreed earlier "just kicks the can down the road. Any rally we've seen in the euro has been short term."

The euro declined 7.7pc so far this month; on track for the longest monthly losing streak since April 2000.

Irish Independent

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