Investors who put their money in Irish equities this year had a pretty good time, and indeed the 18 per cent rise in the ISEQ Overall Index compares remarkably favourably with most other stock markets.
Put it this way, £10,000 (€12,697) invested in the Irish market at the beginning of January this year was worth £11,800 by mid-December. By contrast, the same amount of money invested in the FTSE-100 was worth about £9,650, in the Dow Jones about £9,300 and in the S&P 500 about £9,180. If somebody had the misfortune to put their money into the Nasdaq Composite, their £10,000 had lost almost one-quarter of its value, while punters in the Neuer Markt and London's techMARK indices suffered a 30 per cent loss.
These figures do not take into account the relative weakness of euro-based stocks over that period compared with those denominated in sterling or US dollars.
For the Irish market, most analysts are looking for more of the same and are forecasting a 20 per cent rise in the value of the ISEQ from 5,800 to 7,000 by December 2001, boosted by the continued strength of the domestic economy, improving international markets and the discount at which many Irish public companies are trading against their peer group.
This forecast rise in the ISEQ will come against the background of the continued disengagement from the domestic market by Irish institutions, which are shifting their funds into large euro-zone companies.
Surveys by actuaries Mercer have indicated that the Irish equity component of fund managers' portfolios has fallen from 24 per cent at end-1999 to less than 20 per cent by the end of September. Word in the market is that the selling by Irish institutions has not slowed and when the final figures for end-2000 are computed, Irish equities will be down to 17 per cent of the average institutional portfolio. That same weighting was 65 per cent in the early 1990s.
Many in the market believe that this slow attrition of Irish equities will continue until the weighting has fallen to around 10 per cent. At its simplest, a single currency means that Irish life assurance and pension companies no longer have to balance Irish pound liabilities with Irish pound assets and will continue to be tempted by large, liquid, euro-zone stocks.
Selling by Irish institutions is not a problem as long as there are overseas buyers. In the case of the larger, more successful Irish companies - especially those who have worn out shoe leather knocking on institutional doors in other investment centres - there has been a gratifying take-up of the slack caused by the selling by the Irish fund managers.
At times, one must wonder whether if this same selling has gone too far. Food group IAWS is no doubt delighted that Fidelity is by far its biggest shareholder. But it says little for the Irish investment industry that IAWS - a company acknowledged to be without a peer in its sector - cannot warrant a single Irish fund manager with a stake above the 3 per cent disclosure threshold.
That lack of interest will undoubtedly be reflected in the number of companies that will float on the Irish market. At this stage - apart from the plethora of technology shares that have been mooted as IPO candidates - there is no evidence that any "old economy" private companies are planning to go public. Cantrell & Cochrane - seen as an IPO possibility for 2001 - has postponed a decision.
If anything, the lack of interest in mid-capitalisation stocks (and the definition of a mid-cap stock can vary from €500 million - or £393.8 million - to €1 billion) suggests that we are in for a period of departures from the market, either through mergers, takeovers or companies being taken private.
With most mid-cap companies trading on single-figure earnings multiples, and some on low single figures - the temptation must be there for managements to follow in the footsteps of Henry Lund at Clondalkin and Nelson Loane at Adare and go private. Others may follow the likes of Athlone and Barlo, with agreed takeovers that create combined companies with greater scale.
For those companies with surplus cash, there is always the temptation to go into the market and buy back their shares at very low multiples, a move that at least shares corporate wealth with shareholders and boosts earnings by reducing the number of shares in issue.
The Irish Stock Exchange has spoken publicly about a possible 40 technology companies floating over the next few years. We will wait and see what transpires, but the volatility of the technology markets - when 5 per cent daily swings in the Nasdaq became so commonplace that they barely merited comment - will mean that any technology company aspiring to flotation will tread warily.
The less-than-impressive early trading from recent IPOs such as Datalex indicates a somewhat jaundiced view in the market to the sector. Investors who saw technology blue-chips such as Baltimore bounce in and out of the FTSE-100 every quarter are hardly reassured that the sector offers a stable investment.
It is worth noting that no less a market-watcher than the US Federal Reserve chairman, Mr Alan Greenspan, seemed unperturbed by the volatility of technology markets in the past year. It was only when the millions of Americans that have invested in mainstream S&P 500 stocks became threatened by a slump in the market that he gave a broad hint that US rates are likely to come down to ensure a soft landing next year.
Few pundits predicted the weakness in the Dow and the FTSE in the past year, so it is debatable whether much importance should be attached to their forecasts for 2001. But lower interest rates in the US should mean a rebound in the Dow and S&P 500, although whether forecasts of 20 per cent growth are achieved is open to some speculation.
Growth in the UK is unlikely to be anything as dramatic, with the strength of sterling and high interest rates hitting corporate earnings. Still, the London market will not be immune from any broad-based international stock market recovery.
