Billions of euro wiped off share prices

BILLIONS of euro were again wiped off share prices yesterday, hitting pension funds and private investors as fears of a war on Iraq deepened.

By close of business, the Irish market had lost €1.4 billion off its value, a drop of 2.6% on the day as the ISEQ got caught in the backwash from the carnage on other markets.

In London, the FTSE fell for a record 11th day in a row as close to £30bn was wiped off its value as markets struggled to come to terms with the implications of war on Iraq.

In the US, values were down also, but the decline was not as steep as in other markets. At the time of going to press the Dow had lost 1.8% on the day.

In Europe, the Dax was off 3% and the FTSE hit 3480 as 3.5% was wiped off its share values. In June 1999 at its peak, the FTSE stood at 6930.

The potential for this latest slump in share prices, when many analysts thought we had hit the bottom of the bear market, to turn into a stock market rout in London cannot be ruled out, Ulster Bank Markets chief economist Niall Dunne said last night.

In particular, he stressed the pressure on life companies, with billions tied up in pension funds invested in global stock markets. The fear is that those coming close to retirement may rush to cash in their pension funds, forcing insurance companies to sell equities to meet the cash demands of their customers, he said.

In the current volatile climate anything could happen, and while the war on Iraq is 75% responsible for the current volatility, basic uncertainty about the future direction of the global economy is also a factor, said Mr Dunne.

If the uncertainty gets worse, then analysts fear that life companies will be forced to sell equities and that could cause further stock market mayhem in the weeks ahead.

Meanwhile, the current dollar rout is an added difficulty facing the European economy. It is a fact that the euro gains on the dollar in recent weeks to nearly €1.10 has wiped out the competitive gain brought on by the 0.5% cut in ECB interest rates.

As Europe struggles to get back on a solid growth path, Mr Dunne believes a further cut of 0.25% by the ECB cannot be ruled out at this stage.

Given the bank's propensity to dither, that may not happen until April, but the likelihood of it happening has increased considerably, he said.

He ruled out a further cut of 0.5% as a bridge too far for the European bosses, who still have concerns about the rate of inflation currently 0.2% above the prescribed level of 2%.

Meanwhile, Irish stocks got a battering yesterday as the market fell by 2.6% on the day. Most of the big stocks were hit hard, with Iona, the software group, suffering a 6% loss on the day.

Other big losers included IFG, down 10.6%, Bank of Ireland 3.6% and AIB 3.4%.

Galen saw 7.3% knocked off its share value, while Elan lost 4.6% to compound its misery.

Not even Ryanair stood aloof yesterday as it saw its shares lose 3.9% of their value on another very bad for Irish and international share values.