After a multi-year bull run amid rocketing economic growth, Irish stocks have hit the skids this year, with the benchmark ISEQ index down 30% from its spring peak.
The main worry is the impending slowdown in the Irish economy as the housing market has come off the boil. Prices have risen by 270% over the past decade and construction now comprises about 25% of GDP and 14% of the workforce, notes FAZ.net, but a series of rate hikes by the European Central Bank has dented demand and prices are weakening.
With building on the slide, overall growth looks set to fall to 2.5% in 2008 (from about 4.7% this year), reckon Goodbody Stockbrokers, with lower employment growth reducing consumption growth to 3% from 6.5% in 2007.
No less than 60% of the stockmarket is made up of construction and financial stocks, with the latter buffeted by worries over the credit crunch as well as the slowing domestic economy. Meanwhile, the weakening US and UK are Ireland’s main trading partners.
Given all this, it’s no wonder the market “is just loveless at the moment”, as one trader puts it. With the outlook clouding over, the foreign investors who own around 60% of Irish stocks and gave the market a fillip during the good years will go elsewhere, says Michael Finigan of Finfacts. The market will continue to underperform in 2008.