With the demutualisation of some building societies, and the State's privatisation programme, it was obvious that the number of investors holding shares would rise substantially. Goodbody Stockbrokers, in its report on private share ownership in Ireland, estimates that 13 per cent of the adult population now owns shares, or more than four times the 3.7 per cent in 1991.
While that is a very welcome development, there is a need for that percentage to increase a good deal more. This is still well below the 25 per cent in the UK. The historically low returns from deposit interest, and the continuing privatisation of State companies, should prompt investors to switch from some of the traditional forms of investment, unless, of course, the investor needs an investment with virtually no risk. The pathetically low-deposit interest rate is particularly relevant for the smaller depositor who will only earn between 0.25 per cent and around 2 per cent. With inflation at around 2 per cent, such depositors will see the capital value of their deposits fall in real terms even if they reinvest the entire interest. The auguries for a greater emphasis on equity investment are very good.
The Goodbody report noted that 27 per cent of people in the UK who bought privatisation shares for the first time, subsequently acquired shares in other companies. That should augur well for the Irish market following the planned privatisation of a number of companies including Telecom which has had a staggering response with some 1.2 million people indicating an interest in the shares.
As would be expected a large proportion of participants take up their entitlement but many also retain their investment. In the Irish Permanent Building Society conversion, for example, 210,000 members availed of the offer out of 230,000 members. That amounted to a 91.3 per cent take-up. In the First National Building Society, the take-up was 83.3 per cent. And interestingly, two years after the flotation of Norwich Union, almost 60 per cent have retained their shares, according to Goodbody.
But potential investors will need to be more confident about investing in equities which are, according to the report, perceived as more risky than property. "While this might be true of investment in shares in individual companies, or of short-term investments, it would not necessarily be true of a portfolio of share investments, particularly one that reflected in some measure the composition of the ISEQ index," the report said. It also made the point that sharp falls in share prices, "even those arising from catastrophic events, like Black Monday, were rapidly made good. These risks are much reduced for the long-term investor".
But non-shareholders need to be better informed about investing in the stock market. The report notes that many are openly critical of newspapers and stockbrokers. "Existing information on share prices and company performance was jargonistic and unduly complex. Investing in the stockmarket was seen as an arcane, difficult and even unintelligible process," is how the report summarises the views of many non-shareholders. And it is equally critical of stockbrokers "as they were regarded as remote, aloof and uninterested in the modest investor".
Only 14 per cent of investors would turn to stockbrokers for advice in the first instance, is the grim conclusion. Instead, a large proportion, 31 per cent, preferred to turn to their bank (so much for perceived view of customers' hostility towards their banks), 28 per cent would seek advice from their accountants, or solicitors, while 15 per cent would go to friends and relatives.
The Government's encouragement of share ownership through a number of schemes (approved profit sharing schemes, employee share ownership plans and save-as-you-earn schemes), tax incentives, and privatisation of State companies, is obviously having a positive impact. And the positive omens for the future can only be good for the continuing development of the economy.
