We have just passed the mid-point of 2002 and, like the summer weather, domestic and overseas equity markets remain in the doldrums. The first half of the year has been dreadful for equity investors, particularly since it has come on top of a poor 2000 and 2001.
The accompanying table shows that, of the major stock markets, only the Japanese Nikkei 225 index eked out a positive return over the first half of 2002. The US market as measured by the Standard & Poor's 500 index fell by 13.8 per cent - its worst first- half performance since 1970.
For Irish and European investors, this was exacerbated by the fall in the dollar exchange rate. Expressed in euro, the decline in the value of US shares this year would average about 25 per cent.
The magnitude of share price falls in Europe was similar to those in the US. In Britain, the FTSE 100 declined by 10.8 per cent while the FTSE Eurotop300, which comprises Europe's top 300 companies, fell by 15 per cent.
The decline of 16.9 per cent in the ISEQ Overall index was marginally worse than the European average. But if Elan's catastrophic fall is excluded, the ISEQ would have produced a small positive return. This implies that Irish share portfolios without Elan should have avoided losses over the first half of the year. The resilience of the financial sector was also good for Irish investors. This is reflected in the 15.4 per cent rise in the ISEQ-Financials index and is underpinned by a positive performance from all the main financial stocks ranging from 3.4 per cent in AIB to 50.1 per cent in Anglo Irish Bank.
Not surprisingly, the accompanying list of the top-performing firms includes two financial stocks - Anglo Irish Bank and First Active. Top of the list is housebuilder McInerney Holdings, up 68 per cent to end-June. Department store group Arnotts is next with a share price rise of 52 per cent while Green Property, the subject of bid interest, comes fifth position with a rise of 40 per cent.
Strikingly, the property market is key to the fortunes of three of these top five firms. For Green Property and McInerney, the linkage is obvious. First Active is a narrowly focused bank heavily dependent on the Irish mortgage market. Furthermore, Arnotts share price performance has been buoyed by the uplift in retail properties in Dublin, along with strong trading conditions in their stores.
Worst performers come from the pharmaceutical and technology sectors. There seems to be no let-up in Elan's bad news - it fell sharply again in the past month and its share price decline since the start of the year now stands at 88 per cent. Several tech firms are not far behind on share price tumbles as can be seen from the table. Trintech is off 69 per cent year-to-date while Iona Technologies is down 74 per cent.
A feature of these share price comparisons is the size of the disparity of returns as between the best and worst performing shares. This indicates the volatility that has recently become a feature of share price movements. As we move into the second half of the year, there is little reason to feel confident that calmer conditions will return to global markets.
On accounting issues, the fallout from Enron, WorldCom and Xerox will overhang market sentiment for some time even without further revelations from other large corporations. On the foreign exchange markets, there is a real risk of a further sharp fall in the dollar that could prove destabilising for markets.
Economies are recovering from last year's weakness but fears persist that the global economy is still too dependent on an uncertain US. After strong growth during the first quarter, the pace has slowed in the second and there are fears the US economy could slide into recession later in the year.
Nevertheless, the consensus is that the global economy will gradually improve over the next 12 months and that inflation and interest rates will remain historically low. If this is the out-turn, the second half should be more profitable for equity investors.
