Not so long ago, the Irish punter seeking the high returns that reward high-risk investment could only turn to the resource sector. But an explosion in the number of technology companies listing at home and abroad has resulted in a big expansion in the choice available to the private investor.
A growing number of companies in the telecommunications, software and electronics sectors are opting to float on the Irish Stock Exchange's Developing Companies Market (DCM), on the Alternative Investment Market (AIM) in London or on New York's Nasdaq and all are attracting good interest from private clients, brokers say.
"While these companies are at the higher end of the risk spectrum, they offer better quality and lower risk than the resource companies which were the punter's paradise or graveyard in the Irish stock market," says Mr Brian O'Loughlin, head of investment services at Riada Stockbrokers. "They are filling the gap in the Irish market for higher-risk business."
Brokers say there has been strong interest in stocks such as CBT Group, which listed on the Nasdaq in 1995, and Iona Technologies which floated on the Nasdaq last February and plans to list in Dublin shortly.
Closer to home, the DCM, set up last January to encourage smaller companies to come to the market, has also attracted the attention of private clients.
To date, three stocks have listed on the fledgling market telecommunications group ITG and recruitment company Marlborough International, while Rapid Technology, which has developed a revolutionary electronic point-of-sale system for the retail sector, had a successful debut last Friday.
Brokers say the more companies listed on the DCM, the greater the level of investor interest is likely to be. But private clients are already attracted to the market by Special Portfolio Investment Accounts (SPIA) which require that more than half the funds are invested in Irish equities, but are taxed at just 10 per cent.
A single investor can put £75,000 into such an account, but can increase the limit by £10,000 if the money is invested in DCM shares.
Investing in up-and-coming technology stocks tends to be riskier than putting money into the average industrial stock.
"Many of them are on very high price/earnings ratios which brings a risk. The reason for this is that they are in sectors which are growing rapidly and if they become successful, they could be huge. Everyone is looking for the next Microsoft," says Mr Paul Turpin of the private client department at Goodbody Stockbrokers.
Investors need to consider that many of the firms are one-product companies, while investing in stocks quoted on the Nasdaq obviously carries some exchange-rate risk. Liquidity is another factor that should be considered by would-be investors. Brokers also note that the growing number of Irish technology firms coming to the market means investors will increasingly be able to spread their risk across a basket of stocks.
While the new companies have attracted some fresh faces into the investment market, many of the private investors are already clients of a stockbroker. To seriously expand the investor base in Ireland, a major privatisation is needed, brokers say.
"Irish Life was a big float and so was Irish Permanent, but to get the man in the street, you would need a major float like Telecom Eireann," says Mr Angus McDonnell, managing partner at Bloxham Stockbrokers.
But the recent decision by the Minister for Finance to cut capital gains tax to 20 per cent from 40 per cent should go some way toward boosting the number of small investors in the market.
Mr O'Loughlin expects numbers to grow significantly over the next 12 to 18 months as money left in Irish blue-chip stocks for years as investors sought to avoid the high tax rates seeks a new home. The growing number of investors should be spoilt for choice as the number of hi-tech companies lining up for a listing grows. Goodbody Stockbrokers notes in a new review of the technology sector that 12 per cent of software companies envisage a stock market flotation in the next three to five years.
