PERCEPTION, CONJECTURE, rumour and momentum have replaced fundamental analysis as the key driving force on the markets, chief executive of the Irish Stock Exchange Deirdre Somers said yesterday.
The only counterbalance available to the market is effective communication and transparency both through individual company and industry initiatives, she said.
“Recent FSA announcements regarding the increasing of disclosure requirements around short selling and derivative holdings are hugely welcome and we hope will be followed, as soon as possible, by the Irish regulator.”
Ms Somers said there has been much comment about the role that regulation could have played in preventing much of the pain being experienced on markets and that if risk materialises, there must have been a regulatory failure or new regulation is necessary.
“Firstly, a market cannot exist without risk. Risk is what markets are for – to buy and sell risk, based on the relative, hopefully informed, perspective of the buyers and the sellers.
“Secondly, regulation will only work where it is proportionate, relevant and well considered. Otherwise you either stifle market innovation, incentivise noncompliance or encourage investment elsewhere.” She made her comments as Irish shares took another battering with the Iseq closing down 1.4 per cent.
Irish bank shares followed their European counterparts down after Goldman Sachs published a report suggesting Europe’s banks may have to raise as much as €90 billion to shore up their balance sheets.
The FTSE 100 index closed at its lowest since November 2005 yesterday as it threatened to join counterparts in Asia, the US and Europe in bear market territory.
The UK benchmark has fallen 19.6 per cent from its peak last October, leaving it just short of the 20 per cent fall from a recent high that defines a bear market.
Yesterday’s 1.2 per cent fall in the FTSE caps a torrid week for global equities amid fears the credit crunch is entering a dangerous new phase while inflation continues to rise and corporate earnings are under pressure.
It comes as retail investors continue to desert the market. According to Citigroup, they have been net sellers of European equities for 15 months, offloading € 45 billion ($71 billion) in 2007 and € 41 billion in the first five months of this year. This € 86 billion outflow has more than wiped out all inflows from 2002-2006.
The Dow Jones Industrial Average became the latest leading global equity benchmark to fall into bear territory this week, joining the FTSE Eurofirst 300, Japan’s Nikkei 225 and the MSCI Emerging Markets index. Only the SP 500 has escaped a bear market close.
–(Additional reporting by Financial Times)
