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News : Irish Economy Last Updated: Jan 3, 2013 - 7:56 AM

Irish shares rose by 17% average in 2012; ISEQ index back to mid-1997 levels
By Michael Hennigan, Finfacts founder and editor
Jan 1, 2013 - 10:18 AM

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Irish shares rose by a 17% average in 2012 and the overall ISEQ index returned to mid-1997 levels.

The ISEQ index closed at 3,397 on Monday and rose 17% compared with the 2011 close of 2,902. The index rose 0.6% in 2011.

The overall ISEQ index closed at 3,377 on June 30, 1997.

In current price terms, the market capitalisation was at €85.5bn at end 2012 compared with €36bn in mid-1997.

CRH fell 0.39% in 2012; Elan dropped 26.98%; Aer Lingus closed at + 74%; Bank of Ireland +39%; C&C +59%; Datalex +129%; FBD +60%; DCC +36%; Glanbia +80%; Grafton +64%; ICON +0.61%; Kerry +42%; Kingspan +31%; Paddy Power +40%; Ryanair +30%; Smurfit Kappa +93%  and Independent News & Media -85%.

CRH and Elan together accounted for almost 30% of the market capitalisation in Dublin at the end of 2012. CRH was at 22%. Their primary listings are in London and New York respectively while their Irish operations are not significant parts of their businesses.

On February 21, 2007, the ISEQ index rose to an-all time high of 10,041 and the Financial sub-index rose to 18,098 (see detail under Anglo chart below).

Two weeks before, Finfacts reported that HSBC, the giant global bank, had stunned markets by announcing multi-billion losses on subprime mortgages in the United States.

Individual investors who had not cashed-in on the February peak in bank shares, could be politely termed foolish. The pension fund managers who had rode the bull market and continued to invest in bank shares could be fairly termed idiots, or eejits in the more common Irish vernacular.

The Irish Examiner reported in February 2007: "Much of the growth seen and expected in the Irish market is underpinned by the economic fundamentals.

This year and next the Irish economy will grow about 5%, compared to 1.5% last year for the Eurozone and 2.2% for 2007.

For the past few years, stock market performance has been up over 20%, with 25% growth in 2005.

Forecasts for this year are very good, with growth in the overall value of the market expected to reach 20% or better."

Anglo Irish Bank closed at 22 euro cent on the Irish Stock Exchange, on January 15, 2009 - - its last day of trading before becoming a State-owned bank.

On February 21, 2007, 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.

A year later, on February 21, 2008, AIB closed at €13.80, Anglo Irish Bank finished at €8.84, while Irish Life & Permanent closed at €10.20 and Bank of Ireland traded at €9.50.

In June 2007, one month after the general election and six weeks before the onset of the international credit crunch, Finfacts reported that investors had dumped Irish shares after Irish Life & Permanent said in a trading statement, that its residential mortgage book would grow by 20% in 2007.

Only 20%!!!

In July 2007,  Chuck Prince, Citigroup CEO, had infamously dismissed fears about an early end to the postmillennial debt frolics. “When the music stops,” he told The Financial Times, “in terms of liquidity, things will get complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

In the same month, Bertie Ahern, Irish taoiseach (prime minister), who had been a hospital bookkeeper before entering politics, told a trade union conference that he did not know how people who moaned about the economy did not "commit suicide".

"Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide because frankly the only thing that motivates me is being able to actively change something," Ahern said.

Two weeks before, Finfacts said the slowdown in the Irish housing market which would result in a fall in economic growth in 2008, would hit bank shares which "have got investors addicted to impressive double-digit returns during a long boom."

Ryanair's Michael O'Leary said: `We expect a big downturn in the next 12 months, we just don't know what's going to cause it. We must be due one.''

Finfacts article, June 2007: High foreign ownership of Irish shares will be bad news for stock market in 2008 when housing output will plunge 28% compared with 2006 peak

The ISEQ slumped 66% in 2008.

Even as late as March 2010, Jim Power, Friends First chief economist,  had to warn about the exposure of pension funds to equity markets.

Power said that in February of 2010, Irish managed fund assets had a weighting of 73% in equities compared to 18% in fixed interest.

“We are playing Russian roulette with the Nation’s pensions,” said Power. “Unlike a lot of other European countries we have excessive exposure to equity market volatility. A similar downturn to what happened in the last 18 months would decimate existing Irish pensions and have severe and long lasting consequences for the Irish State. This balance must be addressed immediately in order to prevent the creation of a new section in Irish society – 'The Retiring Poor.'

“There is an onus on pension scheme trustees to regularly review their investment portfolio. In addition to the investment balance, trustees should also review the fee structure of pension fund managers. In the majority of cases these fees have not been adjusted to reflect the recession and in many instances the fees are eroding all potential returns. The pensions industry needs to address it customers concerns and be more transparent, more accountable and more responsive to customer requirements,” he added.

Michael Wolfe, partner and head of pensions at William Fry, a Dublin law firm, suggested that “if possible, trustees should insist on the introduction of performance fees where pension fund managers’ fees are directly linked to the investment return.”

Now, that is a radical proposal in Ireland and to add sauce to it, wonder how more serious attention would be given to pensions if ministers and senior civil servants also had personal skin in the game  -- rather than the one-way bonanzas that they have created for themselves.

SEE also: Global shares rallied in 2012 with the help of central banks

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