The Irish stock market is likely to move ahead strongly next year and NCB Stockbrokers believes that the ISEQ Overall Index may rise by over 20 per cent to 4600 by the end of 1998. The continued strong performance of the market will be driven by earnings growth by Irish public companies, and NCB's forecast of 2022 per cent growth in the ISEQ compares with the broker's forecast of 15 per cent growth for the FTSE-100 index and 8 per cent for the S&P500 index in the United States.
Analyst Mr John Conroy says that the US market will set the general tone for stock markets but that the strong domestic economy will also determine progress over any reasonable time period.
The growth of the labour force and productivity growth suggest a potential growth in capacity of 5 to 6 per cent per annum while the expected fall in interest rates in the run-up to EMU is another plus factor.
"The Government's commitment to reduce the corporation tax rate from 36 per cent to 12.5 per cent by 2006 adds an important new structural dimension to the Irish economic growth story.
"The radical reform of the corporation tax and capital gains tax systems just announced in the December budget has very positive implications in terms of continuing to attract a high level of inward investment and of developing a more vibrant domestic business environment," says Mr Conroy.
The NCB analyst says that the weightings of Irish fund managers in Irish equities are likely to fall significantly under EMU but that the process is likely to be gradual and that the weighting of equities is likely to fall from the current 30 per cent to around 20 per cent by 2001.
This reduced exposure to the Irish market would involve share disposals of £2.3 billion over four year, although the bulk of this selling is likely to take place in the latter portion of this four-year period.
The current overseas inflow into equities of £500 million to £700 million is likely to be maintained, says Mr Conroy.
On individual stocks, NCB's preference is biased towards companies with a strong domestic presence and the brokers recommend an overweight position - brokers's shorthand for "buy" - for AIB, Bank of Ireland, Irish Life, Irish Permanent and Greencore, while a market weighting is recommended for Smurfit, Powerscreen and Ryanair. NCB, however, recommends that investors should reduce their holding in Kerry group to just 50 per cent of the company's 3.3 per cent weighting in the ISEQ Index.
"Kerry has a strong track record of growth but we feel that at this juncture its rating is still too high relative to its growth prospects," says Mr Conroy.
NCB also believes that investors should be 10 per cent underweight in Avonmore Waterford and Independent Newspapers, 20 per cent underweight in Waterford Wedgwood and 40 per cent underweight in Northern Ireland Electricity.
Smaller companies favoured by the broker include DCC, Anglo Irish Bank, Grafton, Irish Continental, Heiton, Arnotts, Marlborough and IFG.
