The Irish stock market surged to new highs for the second day in a row yesterday, confounding expectations that it would take a breather after Monday's stellar performance. Irish equities shrugged off a generally sluggish session in European markets and ignored a weak performance on Wall Street to add a further £425 million in value following Monday's gains of £1.5 billion.
The Dow Jones Industrial Average closed 72.74 points lower on 7906.25 amid renewed worries about the effect of the Asian economic crisis on US corporate profits after markets there took another battering yesterday. Several south-east Asian currencies plunged to new lows, taking stocks markets down with them. Malaysian shares slumped 3.85 per cent, Singapore shares shed 3.8 per cent and Hong Kong's Hang Seng index lost 1.63 per cent, while in Tokyo the market closed 0.4 per cent lower, hurt by yen weakness.
International investors also turned sour on oil company stocks after US brokerage Goldman Sachs cut its forecast for crude oil prices this year to $17 a barrel from $18 and reduced its earnings forecasts for major oil companies amid fears of renewed Iraqi production.
However, the Irish market, with little or no exposure to either Asia or the oil sector, forged ahead, adding 1.6 per cent to Monday's gains of 3.35 per cent and closing at a new high of 4,259.45.
Irish Life was the main mover, gaining 241/2p to close at an all-time high of 4321/2p, but the two main banking stocks also continued their foray into record territory with AIB finishing 12p higher at 744p and Bank of Ireland gaining 10p to 1160p.
Dealers say domestic institutional investors such as pension funds already hold more than enough cash and are reluctant to part with their Irish shares.
Meanwhile, overseas investors remain keen to get into the market and acquire exposure to the booming Irish economy. The current weakness of the Irish pound is another incentive as it makes it cheaper to purchase Irish stocks.
The result is that anyone wanting to buy Irish shares, particularly in the financial sector, has to be prepared to pay up.
Brokers say the market, which has gained 5 per cent since the start of the year, has already gone a good way toward meeting their full-year targets. And while it may take some time out to consolidate, they expect no sudden reversal of fortune given Ireland's benign economic environment.
With further growth forecast this year and the public finances on a sound footing, the general economy looks to be in good shape, while interest rates are set to fall by up to 2 per cent as Economic and Monetary Union (EMU) approaches.
The recent sharp drop in the pound and the likelihood that the Government will not opt for a revaluation but will let the pound join the single currency at its ERM central rate of 2.41 deutsch marks, also augur well for exporters and corporate profitability, dealers say.
In addition, the effects of December's equity-friendly budget are still being felt. The promised reductions in corporation tax, which should see companies paying a rate of 12.5 per cent from 2006, have to be factored into the market.
Despite jitters about Asia, recent news from the US has also been reassuring. The chances of a US rate rise have significantly diminished after the Federal Reserve chairman, Mr Alan Greenspan's remarks about US deflation on Saturday.
