At the beginning of 1999, fears were expressed that the Irish stock market was facing tough times, with the advent of the euro likely to result in a fundamental shift in assets from the Republic to the major European markets.
The argument here was that with the arrival of the euro, investors, who no longer had to worry about currency volatility, could make their investment decisions on a euro zone basis, with no requirement to balance Irish pound assets and liabilities by holding large volumes of Irish shares.
Well, those fears proved to be well-founded, with Irish fund managers taking full advantage of the new euro zone opportunities to invest heavily in European stocks with a consequent reduction in their holdings of Irish equities.
By the time Irish institutions have finished their asset reallocation it is expected that no more than 20 per cent of their assets will be held in Irish equities compared to upwards of 35 per cent before the arrival of the euro complicated matters.
The end result? While international markets roared ahead, the Irish market - supposedly rooted in the strongest economy in the euro zone - fell almost 5 per cent on the turn of the year and almost 12 per cent off its April high. And financial shares - which make up almost half the total market - were over 23 per cent below the end of 1998 and 28 per cent off their highs of early January.
While that process of asset reallocation has been felt right across the market, it has been the small and mid-cap sector that has suffered most from the flight of investment capital. And even well-managed companies with solid trading records have suffered from the growing disinterest in this sector of the market, a process that is likely to result in more and more companies being taken private.
Mr Henry Lund and Mr Norbert McDermott at Clondalkin became so frustrated at the way their company was being treated by the market that they took the packaging private in a £300 million (€381 million) management buyout. Others will undoubtedly follow the lead set by Clondalkin, with apparently no shortage of venture capital available to fund buyouts of quality companies.
The relative cheapness of small and mid-cap firms has, needless to say, attracted bid interest from overseas, with CGU swallowing up Hibernian Insurance, Terex taking over Powerwscreen, Chesapeake launching a bid for Boxmore, Sainsbury taking over Hampden while Jones - after almost 30 years on the market - was taken private after selling off all its assets.
Are more going to follow the route private? Yes would seem to be the answer although some of the likely candidates have publicly come out against going private - Adare and Unidare being just two examples. Others like IWP have toyed with the idea without going ahead and instead directors bought in large volumes of shares as a demonstration of faith.
And in the boom-boom go-go technology and telecoms sector, Irish companies are not immune to takeover, as the Esat Telecom affair shows. Esat might be well established as a £1 billion-plus company, but there are plenty of international companies out there with the money and the appetite to buy up successful Irish companies like Esat.
Even Eircom - well-established as number two in the Irish stock market with a market worth of around €8.5 billion - is a potential takeover target, with the 35 per cent stake being unloaded by KPN and Telia giving some large European telecom company the opportunity to at the very least buy a large chunk of Eircom and possibly bid to buy out the company within a year of its flotation.
The destination of that KPN/ Telia shareholding will not be decided until early in the new year, but Eircom itself and its army of shareholders will be hoping that it is sold to another telecom company rather than being sold on a market which currently has little appetite for any stock, never mind a €3 billion (£2.36 billion) chunk of the market's second-largest company.
Eircom's flotation in July was the high point of an otherwise dismal year for the Irish market. At least it was the high point for the Government which got a premium price for the State telecom company, if not for those shareholders who remained loyal and as a reward for that loyalty saw their shares plummet from the early high. The only winners so far in the Eircom flotation are the stags, who sold their shares in the week after the flotation at prices which, at this stage, seem positively unreal.
Eircom shareholders will probably do reasonably well - eventually - but the anaemic performance of the company's shares do not augur well for future flotations of State assets.
Both Aer Lingus and ACC/TSB are still supposed to float next year, but it is difficult to see the public flocking to invest in Aer Lingus, while the proposed TSB/ ACC flotation now looks a laughable prospect given the lack of interest in even big banking shares and the whipping that the ACC half of the merging bank got from the Public Accounts Committee.
If investors have little interest in the likes of AIB and Bank of Ireland - not to mention truly dreadful performers like First Active - what possible interest will they have in TSB/ACC with a likely market worth of not much more than €500-€700 million and exposure to an Irish banking market characterised by tightening margins and pressure from outside - the arrival of Bank of Scotland and Northern Rock being the latest examples.
The two big banks themselves have had a poor year, but in Bank of Ireland's case it was a self-inflicted wound in the form of the abortive merger with Alliance & Leicester which caused the most damage. Quite how the Bank of Ireland management could call the market so badly when it offered itself on a plate to Alliance & Leicester is beyond belief, but the management has remained intact despite the debacle.
AIB in contrast suffered at the hands of the compilers of Stoxx, the pan-European index which at first included AIB in its 50-strong Euro-50 Index but then ignominiously ejected the Irish bank when the methodology for inclusion in the index was changed. The result? The index funds which bought into AIB at the start of the year quickly sold once AIB shares were removed.
Looking ahead, it seems clear that the technology, e-commerce and telecom sectors will remain the go-go sectors, and more and more Irish companies will probably come to the market in the years ahead. But which market?
The Irish Stock Exchange plans to makes itself more friendly to technology companies, but it is difficult to see the Trintechs of this world forsaking Nasdaq and the Neuer Markt for a Dublin listing. The best that the Irish market can probably hope for is that Irish technology companies take a secondary listing in Dublin.
As was made clear in Peter Bacon's report on the future options for the Irish market, the future is not promising unless the market accepts fundamental changes to the way it does its business. If the Irish market can get those changes in place this year, then at least some progress will have been made. Otherwise the long-term future is bleak.
bmcgrath@irish-times.ie
