Market mayhem sees €2bn wiped off Irish shares

MAYHEM returned to stock markets again yesterday ending hopes that Tuesday’s sharp rally would be sustained.

At the close, the ISEQ index of Irish shares was down by nearly 2% representing a loss in value of close to €2 billion on the day, and a near total reversal of Tuesday’s gains.

Concerns at rising inflation and higher interest rates unnerved markets again yesterday and some analysts say the meltdown in Europe and Asia, in particular, is being driven by major US hedge funds pulling out of vulnerable stocks in the commodities sector.

For that reason, the US has been spared the worst of the sell off’s, and most of the indices were still in positive territory in early trading again, yesterday, even if the gains were modest.

According to ABN in London the big US hedge funds have been doing the selling and putting their money back into the US, which helps explain why America has fared better in the current bloodbath.

In Dublin, banks, once again, paid the price. AIB shares dropped 9c to €18.21, Anglo Irish was down 14c to €11.94, while Bank of Ireland edged up 2c to €14.07 and Irish Life and Permanent rose by 5c to €18.80.

General insurer FBD led the fall in financials and was down a whopping 95c to €35 on the day.

Builders providers also helped to sink the ISEQ yesterday with sector leader, CRH — a big casualty of last week’s sell off — down 45c to €25.70.

Despite the uncertainty, and growing concerns about comparisons with 1987, Robbie Kelleher, chief economist with Davy Stockbrokers says he is sticking to his forecast of a 20% rise in the ISEQ for 2006.

“We have been here before. All in all, we see no reason to alter our expectation that European markets will generate capital appreciation of 20% plus in 2006, and that the Irish market will fully participate in this continued rally”.

That was a quote from Davy’s weekly book of two weeks ago.

“With the benefit of hindsight, the timing of the call clearly was not great”, he said.

Since the piece was written, the ISEQ has fallen by about 6% and the FTSE 300 is down over 7%.

Despite that setback Mr Kelleher said history has shown strong recovery by European markets in the past when interest rate and inflationary fears had spooked investors in a similar fashion to what’s happening at present.