After notching up gains of nearly 50 per cent last year, the Irish stock market is widely expected to remain on an upward path in 1998. A buoyant domestic economy, strong earnings growth and the recent Government decision to cut corporation and capital gains tax should support Irish equities while the international backdrop remains generally favourable.
Analysts believe continued economic growth in Britain and US should prove positive for Irish firms with operations in these markets while concerns about the knock-on impact of the Asian crisis appear muted.
"The crisis in south-east Asia will reduce the risk of overheating and help contain inflationary expectations but we believe the risk of a global recession due to events in Asia is small," Goodbody Stockbrokers said in its 1998 equity strategy.
But the real engine of growth for Irish equities this year will be the strong local economy, provided there are no dramatic negative developments overseas. "The structural factors underpinning the very strong rates of economic growth in Ireland are still very much in place and there is every basis for expecting this strong growth to continue," NCB Stockbrokers said in its outlook.
Goodbody and NCB are forecasting earnings growth of 18 per cent in 1998, higher than most other markets on foot of the strong growth in the domestic economy, very limited direct exposure to Asia and the earnings impact of cuts in the corporation tax rate.
Davy Stockbrokers also expects double digit earnings growth to continue over the next two years and is expecting growth of 16 per cent in 1998 followed by 13 per cent in 1999.
As a result, brokers are forecasting increases of as much as 20 per cent in the ISEQ index of Irish shares this year on top of last year's 49 per cent rise.
The index ended 1997 at 4053.8, just shy of its all-time high of 4063.7.
Although current valuations are well above historic norms, Davy notes that, by international standards, valuations of just over 14 times 1998 earnings and less than 13 times 1999 earnings do not look overly stretched.
The main risks to this benign scenario would be the emergence of wage inflation on the domestic side or a downturn in the hightech sector.
NCB believes there is also a major unknown on the technical side, with weightings in Irish equities held by Irish fund managers likely to come down significantly after EMU.
When it comes to picking particular shares, all of the brokers recommend stocks with exposure to the booming Irish economy.
Both of the main banks fit this category and analysts expect them to continue to reap the benefits of strong credit growth, still running at close to 20 per cent year-on-year.
Both banks turned in record performances in 1997 with AIB gaining 72 per cent while Bank of Ireland shares more than doubled in value. Other leading stocks which could be considered Irish economy plays are CRH, Independent Newspapers and Irish Life, brokers say.
For a non-Irish economy story, Davy says Smurfit is its preferred choice. But Riada worries that the impact of the Asian slowdown on the paper and packaging industry could hold the share price back.
