Davy cautious on market recovery Investors might like to tear themselves away from the Millennium festivities at year's end to indulge in a spot of broker baiting.

Such is the disparity in the predictions from brokers in the last week or so about the value of the Irish stock market in the months ahead, that time will show some to have got things dreadfully wrong.

Davy Stockbroker was the latest out of the box this week, suggesting that the ISEQ is likely to regain some of the heavy losses of the past nine months.

But it cautioned that weak international stock markets are likely to restrict any gains with the ISEQ unlikely to move beyond 5,000 over the next six months.

The Davy forecast is broadly in line with the 4,800 forecast from NCB analyst John Reynolds, but in stark contrast to the exceptionally bullish 6,000 from Goodbody Stockbrokers.

According to Davy analyst, Mr Robbie Kelleher, the fall in the ISEQ is almost totally down to the slump in financial shares - down 20 per cent year to date - while non-financial shares have done well with a 13 per cent gain so far.

Indeed, if the Irish non-financial shares were viewed as a separate market, it would rank as one of the best performing markets in Europe in the year to date.

Two technical factors are responsible for the weak performance of Irish financial shares, says Mr Kelleher.

The positive perception of the Irish economy has given way in some quarters to fears that the pace of economic growth has become unsustainable.

In addition, Irish pension funds - whose portfolios were made up 30 per cent of Irish equities at the beginning of the year - have been steadily reducing that weighting with a medium-term target of a 15 per cent Irish equities weighting. Irish financial shares account for nearly 40 per cent of the total Irish market.

But Davy, and most Irish analysts, take a more positive view of the outlook for the Irish economy and believes that the fundamentals are sufficiently favourable to allow the market regain much of its recent underperformance over the next six to 12 months, although the level of growth will be impacted by the performance of international equity markets.