Note: Article originally appeared in January 2012
The Irish stock exchange, in line with the broader Irish economy, has been through a turbulent four years. From its peak in June 2007, the general market index has fallen from 10,400 to just over 2,700 at the time of writing. Its trading volume is down to around a quarter of where it was in 2007 and its composition in terms of members with the largest market capitalizations has also changed considerably.
Several of the largest companies on the exchange at that time have either fallen into bankruptcy, have removed their listings from the exchange altogether, or, like the largest Irish banks, AIB and Bank of Ireland, are effectively being kept together by what amounts to government life-support. By any standards, this has been possibly the worst stretch in the history of Ireland’s index. The damage hasn’t just been financial as it may have been in the past – the damage has been reputational as well.
The Irish index is not unique in experiencing (and in continuing to experience) turbulent times. Since the current world financial crisis began in the second half of the last decade, most western stock indices are considerably lower than where they peaked in 2007 and 2008. In fact, of the world’s developed economy indices, only Australia’s ASX is above where it was in 2007/2008,1its success driven by an on-going boom in minerals.
With an estimated 0.2% share of the world indices market capitalization - and that share falling almost daily with the meteoric rise of indices in developing economies – the Irish stock exchange could never be described as significant in global terms. In fact, as we will see in this paper, it currently has to justify its existence at all. Nevertheless, a stock market exchange is an important component of most functioning economies.
The debate about whether the stock market is a good indicator of the economy or vice-versa is on-going but in general, stock markets appear to be one of the best indicators of future performance in an economy. Generally, a stock market leads an economy by around four months in terms of business conditions.3 The merits of such indicators are somewhat muted at a time when a currency crisis is the major factor in the economy’s future but nonetheless, the point remains.
At the present time, Paddy Power, an online gambling and casino firm is larger by market capitalization than all three Irish banks combined. What this says about the future of the Irish economy is unsure but it doesn’t send a good message to analysts when speculation is very literally the lifeblood of the exchange. This is just one of several peculiarities associated with the Irish stock exchange which warrant further investigation.
This paper is divided into several sections, with the intention of providing an overview of where the Irish stock exchange has come from, where it is and where it may be headed. Section 2 is devoted to a short history of the exchange and it origins. Section 3 profiles the exchange in terms of its economic and financial fundamentals and section 4 provides a brief summary and perspectives for the future of the market.
History of the Irish Stock Exchange
The Irish stock exchange was formed in 1793, making it the sixth longest-surviving stock exchange in the world.4 It was first recognized by Irish legislation in 1799 when parliament of the time passed the “Stock Exchange (Dublin) Act. Before the advent of communications, the stock exchange incorporated three separate exchanges in Galway, Dublin and Cork. This arrangement was terminated in 1973, when the exchanged merged with these stock exchanges and regional exchanges in the United Kingdom to form an Exchange of Great Britain and Ireland.
The exchange has had a colourful history. Many observers of equity market histories will be familiar with the south sea bubble, the tulip bubbles and other phenomena which have made their mark. Inevitably, given its age, the Irish stock exchange has witnessed several investment booms of its own in the two hundred year period since its inception. These are well covered by Whelan (1999), who cites multiple examples of booms and busts in the Irish stock exchange.
He notes: “in the 1790s, the Irish stock exchange witnessed speculation on canals, in 1815-1816 on commodities at the end of the Napoleonic Wars, in 1825 with stocks generally coincident with a fall in interest rates, in the 1840s and 1850s on railways and wheat (no doubt in some form connected with the Irish potato famine of the time), and in 1866, on general limited liability companies.”
He continues, “A mania of speculation in shares was triggered in 1886 following a Guinness issue of shares against the backdrop of the poor French vine crop. The invention in 1888 of the pneumatic tyre by the Belfast veterinary surgeon Dunlop led to a frenzy in the activity of the shares of cycle companies, which reached a fever pitch in 1897 when the public in the gallery of the Dublin stock exchange became so agitated cheering and shouting instructions to their brokers that the police were called in to eject them and issue a cooling off period. Later that year, cycle stocks fell by more than 50%.”
Excluding banks, there were only 10 companies on the Irish stock exchange prior to 1850, despite there being only 47 limited liability companies at that time. The 1856 Joint Stock Companies Act is a watershed in that it allowed limited liability to become generally available. In the fifty years that followed, Whelan (1999) notes that over 2,500 companies were registered as limited liability companies. Only 1,387 survived until 1906, which suggests a fairly poor investment environment at the time.
Between 1973 and 1986, there were no new listings on the exchange. Different reasons might be attributed to this, but we suggest that the worst post-war recession of that time (the IMF provided funds to the UK in 1974, while Ireland experienced huge levels of emigration in the 1980s), would surely have been a factor. In 1995, it became independent again, having been bought out by numerous Irish stakeholders and the timing coincided with over ten years of almost interrupted growth. The interruption, the financial crash, is briefly covered elsewhere in this document.
Historical Performance of the Irish Stock Exchange
The Irish Stock Exchange is, and arguably always has been, a small but highly internationally-integrated stock market. This has primarily been due to Irelands close ties – and some would say, reliance – on the United Kingdom. Indeed, as noted above, for long periods, the Irish stock exchange was a constituent part of the British exchange so there was a natural tendency towards divergence between the exchange returns and patterns.
Despite the close connection with its neighbouring British exchanges, historical separate figures still exist for the Irish exchange, which allow us to provide a historical perspective. In fact, the Irish stock exchange benefits from particularly good existing records, which makes it appropriate for research purposes over a long period of time. Daily price changes have been chronicled since 1802. In addition, the exchange was one of the first to change to capitalization-weighted arithmetic indices in January 1934, which facilitates analysis for our purposes. The chart which follows provides a summary of the highlight results of the 20th century. Of particular historical interest is the year 1922, with the highest return on bonds. This was the year in which a civil war began in Ireland and shows at a glance, how political risk plays its part on investment returns.
Historical returns on Irish equities have been lower than their Anglo Saxon counterparts in the UK and USA, at least when considering the period 1900-2000. Data accumulated over course of the 20th century show that Irish equities had an average arithmetic return of 7% per annum, compared to 7.6% in the United Kingdom and 8.7% in the United States. A historical comparison between Ireland and the United Kingdom also provides some interesting data which backs up theories that both exchanges have always been closely correlated. Each of the exchanges had their worst return on equities in 1974; Irish equities losing 54.1% of their value with UK equities losing 57.3% of their value.
A graphical representation of Irish assets over this period exhibits significant growth but the figures still lag behind other exchanges. For example, the UK exchange grew almost twice as much, as accounted for by the extra growth per annum, (to a nominal 16,606) in the same period. Unfortunately for shareholders of Irish shares, this is unlikely to have been offset by less risk. In fact, historically, Irish assets have been predictably more risky than British assets as shown by superior bond returns.
It should be noted at this point that the Irish stock exchange has done very well from its associations with the UK exchange. When compared with other stock markets over a similar period, the returns have been relatively high. Equities in Ireland outperformed most developed countries stock exchanges in the 20th century and this can be directly attributed to close ties with its larger neighbour (despite more than one political attempt on the Irish side to disentangle both economies).
Changing Constituent Members
Like any exchange, the constituent members of the Irish stock exchange have changed over the years, exhibiting broader changes in the Irish and world economies. When the exchange was founded in 1793, it had ten members, all of whom were either banks or canal companies. By using data researched in the Irish Times archive, we’ve been able to garner an overview of different eras on the stock exchange and the changing constituency of the Irish stock exchange. One point to note is that market capitalization wasn’t always provided in the data, meaning the relative size of each industry equally wasn’t attainable.
1860-1870 (average arithmetic return: 7.77%; average inflation: 16.78%)
This decade was dominated by banking and railway shares. However, shares in canals, small Irish mines and utilities also make an appearance. On January 6th, 1860, the Irish Times notes about the “extraordinary success of Irish banking institutions,” that: “During the fearful monetary crisis of 1857, when long-established English houses fell in rapid succession, not a single banking institution in Ireland faltered for a moment in its payments.”
1871-1880 (average arithmetic return: 5.75%; average inflation: 13.54%)
This period is characterized by a continuation of the previous decade. Shares in gas utilities appeared as did shares in slate mining, possibly signalling the birth of the Irish building materials industry – presently one of the largest in the world. This period is also notable – for the first mention of stock exchanges outside of the British Isles, suggesting that Irish investors, however few, were beginning to diversify their portfolios internationally.
1881-1890 (average arithmetic return: 4.11%; average inflation: -1.62%)
The 1880s brought the first shares in telecommunications, with “telegraph shares being available for purchase. Brewery and distillery shares are also prominent, with Guinness issuing shares in October of 1886. A summary of proceedings in the Irish Times of October
6 O’Rourke (1991) provides a good analysis of Ireland’s economic war with the UK in the 1930s.
27th, 1886 noted: “considerable business was carried out again on Arthur Guinness and Co., at prices varying from 6 to 6 and a half pence at a premium.” The company issued shares on the London stock exchange at the same time, pre-empting a move from Ireland.
1891-1900 (average arithmetic return: 8.24%; average inflation: 0.25%)
Dimson et al (2002) note that in 1899, there were 70 shares listed on the Irish stock exchange (a similar number to the present day) and that 60% of the stock market in Ireland by market capitalization was occupied by just 12 railway and banking stocks, suggesting that the exchange was highly vulnerable to swings in prices of just a handful stocks as it still is to this day. Similarly, we note the boom in “cycle shares” elsewhere in this document. Our research tells us that this is also the first time that “telephone shares” were mentioned.
1901-1910 (average arithmetic return: 3.64%; average inflation: 0.55%)
The beginning of the 20th century is marked by more sophistication in listings. Highest and lowest prices are listed, along with the overnight bank rate. Brewery and distillery shares, dominated by Guinness and Irish Distillers came to prominence in this decade, perhaps spurred by increasing foreign distribution and sales. Tramway shares get a first mention in the stock exchange listings as do “manufacturing shares,” and “trading companies.”
1921-1930 (average arithmetic return: 13.62%; average inflation: -3.77%)
There was no significant change in constituent members of the Irish stock exchange in this period from the previous decade. Canal shares had by now all but disappeared. Ireland’s war of independence occurred between 1920 and 1922, however and was followed by an 18-month civil war. It’s interesting to note how shares reacted to the political events of the time.
On December 1st 1921, the Irish Times noted: “There was a quite volume of dealing on the Dublin stock exchange yesterday, indicative of the absence, more or less, of the investing public from the market in these uncertain times.” This was followed on December 7th, 1921 (the day after a signing of a treaty of independence from the UK) with “the official notification that an agreement was ratified in the negotiations with Irish delegates helped the general direction of the Dublin stock exchange yesterday and…prices advanced pretty strongly.”
1931-1940 (average arithmetic return: 8.75%; average inflation: 2.26%)
“Land shares” make an appearance on the Irish stock exchange, after the government decides what to do with land confiscated from the British. “Tobacco shares” also make an appearance through the arrival of Imperial Tobacco on the Irish stock exchange. Industrials and food producers are also more prominent in this decade with Imperial Chemical and Unilever both appearing on the exchange for the first time.
1941-1950 (average arithmetic return: 9.61%; average inflation: 4.39%)
There was some movement towards food and agricultural shares in this period, possibly as an offshoot from the lack of food supplies from outside during the war. Bakery and dairy shares made a first appearance on the exchange, despite arguably being an older sector than all others. It seems industrials were a much larger proportion than was previously the case, with over 20 industrial shares on the exchange. Interestingly, the war seems to have relatively little affect on the performance of the Irish stock exchange.
1951-1970 (average arithmetic return: 17.14%; average inflation: 8.88%)
The Irish economy and in particular, the Irish construction industry, languished during the 1950s. As a result, most shares fell and several building materials companies that were present on the exchange, removed listings entirely, merged with others or went bankrupt during this decade. Most years in the 1950s on the Irish stock exchange are characterized by lethargic growth and two years of heavy decline: -20.4% in 1952 and -12.4% in 1956, with the exchange experiencing an extremely strong recovery in the 1960s.
It is also interesting to note that the period from 1956 onwards, Ireland moved away from a “British-style” economy towards what became known as an “Irish style” economy, one which is highly export and foreign capital-driven. This being based on white papers in the 1950s written by an Irish economist, Ken Whitaker. The economy was being geared towards attracting foreign investment, which over time, led to the 12.5% corporate tax rate cited elsewhere in this document.
1971-1980 (average arithmetic return: 26.9%; average inflation: 13.96%)
It wasn’t until the 1970s that an insurance firm appeared on the Irish stock exchange. Large listings included manufacturing firm Waterford Crystal in 1971 and construction firm, the
McInerney Group in 19727. Otherwise, the 1970s were characterized by extremely volatile returns and despite high returns, a general negative sentiment. An indicative article from the Irish Times on January 4th 1977 entitled “Employment Slumps in Public Companies,” pointed out that of 76 listed companies on the Irish stock exchange, 47 had reduced employment.
1981-1990 (average arithmetic return: 23.14%; average inflation: 7.39%)
With no listings for the first part of this decade, the second part of the decade was dominated by the public listing of IAWS8, which to this day is a major player on the Irish stock exchange. The 1980s finished with increasingly business-friendly government budgets, including an insightful 10% corporate tax rate offered to telecommunications firms. An article from the beginning of 1989 shows the total market capitalization of the Irish stock exchange at IR£5 billion.
1990-2000 (average arithmetic return: 22.45%; average inflation: 2.17%)
This decade is characterized by the inclusion of technology and communications firms10, the privatization of the state telecoms company Eircom and the immense growth of Irish banks. By the year 2000, Ireland was already facing a spiralling economy that required cooling. The funds industry in Ireland in particular was beginning to come to the fore, particularly with the advent of the euro. An Irish Times article on December 30th 1999, stated: “by the time Irish institutions have finished their asset reallocation, it is expected that no more than 20% of their assets will be held in Irish equities,” a premonition most Irish people now wish had been true.
Profiling the Irish Stock Exchange
The Irish stock exchange is an Irish private company, owned by eight separate shareholders, all of whom are traders on the exchange. The Irish Stock Exchange currently operates three separate markets. These are:
The Main Securities Market (MSM), which is the principal market for domestic and international companies. Its includes an extensive range of security types such as equities, Irish Government bonds, debt securities, exchange traded funds and investments funds.
The Enterprise Securities Market (ESM) is an equity market catering to small and medium sized firms.11
The Global Exchange Market (GEM) is a “specialist debt market for professional investors”.
Research on the most recently available data shows a daily trading turnover since June 2011 of between €60 million and €130 million per day. The trading volume consists of similar amounts. There are rarely corporate debt issues, which may be a result of many large firms being cash rich at the moment, few investment opportunities given the harsh economic climate prevailing in Ireland or a reticence among firms to take on corporate debt when the Euro crisis remains unresolved. The table on the right hand side provides a summary of both equities and government paper in the year 2010, the most recent year available with statistics.
The exchange is marketed as being for “growth companies,” but given that AIB, once Ireland’s largest bank and now considerably smaller, is on this exchange and used to be on the MSM, this exchange is certainly not restricted to growth companies. By international exchange standards, these figures are miniscule. This is already intuitive but to put into perspective how small the trading volume is by international standards, a comparison with the FTSE 100 is worthwhile. In the month of November 2011 alone, the average number of daily trades was 715,033 with an average daily volume of trading totalling £4.27 billion. The difference in scale gives underlines the difficulty the Irish Stock Exchange faces in a modern trading context, but we will discuss this further later.
The Irish stock exchange by sector
As the historical review in this document has summarized, the Irish stock exchange constituency by members has changed dramatically since its inception in 1793. But the Irish stock exchange has undergone radical change in less than 20 years. While the Irish banks have traditionally been major players on the Irish stock exchange, the financial crisis has changed their standing on the exchange for the foreseeable future. Financials now account for about 1% of the exchange, losing 95% of their value in less than 5 years.
Key Players by Market Capitalization on the Irish Stock Exchange
As the sector breakdown above illustrated, the Irish stock exchange is currently heavily skewed towards the building materials sector. Such dominance in a small exchange by one sector isn’t unusual. Around 50% of the Russian stock exchange (the RTS) is dominated by oil and gas firms, while until recently, the Finnish stock exchange (the nordic OMX) was dominated by Nokia, who held around 70% of the total market capitalization.
With such a reliance on one sector, the Irish stock exchange may not provide a hugely beneficial addition to a portfolio (unless an investor was willing to put their money on the building materials sector having a turnaround in the near future). Nevertheless, there are several large companies whose shares are listed on the Irish stock exchange which warrant investigation and, depending on the portfolio, investment.
CRH (Building materials sector; app. market capitalization: €10.991m)
As noted elsewhere in this document, this company now moved its primary listing on the London stock exchange at the end of 2011. Their website says that they operate in 35 countries, a level of diversification which should provide adequate protection against downturns in the sector but operating profit of €698m on total revenue of €17.000m in 2010 shows that they are in turbulent times.
Tullow Oil (Mineral exploration sector; app. market capitalization: €13.230m)
All major financial indicators were significantly up in 2010 from 2009. The company had operating profit of $235m on total sales of $1.100m and has since discovered new oil fields in Uganda. The company has also developed its deep-water operating capability, providing it with access to previously un-chartered potential oil fields and has begun exploring potential coastal reserves in South America.
Paddy Power (Online gaming sector; app. market capitalization: €1.481m)
This is a popular share with analysts of the Irish stock exchange which increased its cash holdings from €80.6m in 2009 to €139.6m in 2010. Earnings per share also jumped 33% in the same period. Earlier in 2011, the group reported that revenues were up 33% on the same period in 2010. The company has been fast in developing products for smartphones and has a clear internationalization strategy with the resources to acquire other firms where appropriate.
Kerry Group (Food sector; app. market capitalization: €4.378m)
Kerry Group has manufacturing facilities in 23 countries and sales in over 140 countries, providing it with a good international base for diversification. The company has established itself as a leader in “food ingredient and flavours,” a niche market. In 2010, the company achieved revenues of €4.960m and net profit of €393m. The company is well positioned to deal with rising food prices.
Glanbia (Food sector; app. market capitalization: €1.080m) The company is primarily operational in dairy markets in Europe (including Russia), North America and South America. It had a poor return in 2010 of €158m net profit on total revenues of €2.600m, although both indicators were up by around 20% each on 2009. The dividend per share was also up 10% on 2009 and 2011’s results are expected to yield similar positive news.
Ryanair (Airlines and shipping sector; app. market capitalization: €5.604m)
This company has – so far, at least – disproven Warren Buffett’s famous theory on airlines. Ryanair experienced its 11th consecutive year of passenger growth in 2010, reaching 66.5m passengers, 20m more than its nearest competitor in Europe, Lufthansa. This figure was up 14% on 2009. It earned net profit €305m in the same period on revenue of €2.988m. All of this was achieved in times of rising oil prices.
Elan Corporation (Pharmaceutical sector; app. market capitalization: €2.429m)
At first glance, the pharmaceutical sector might strike investors as uncertain. To quote a recent article from the Economist, “the drugs industry is in a flux… research is becoming more expensive and drugs are becoming cheaper.”15 But a growing world population will require more drugs. Turnover in the third quarter of 2011 was up 27% on the same period in 2010. By the end of 2010, the company had close to a billion euro in cash, so it also holds a strong financial position.
Arzyta (Food sector; app. market capitalization: €2.897m)
This company was formed by the merger of Irish and Swiss food producers and therefore maintains listings on the Irish and Swiss stock exchanges. The company had net profit of €260m on total revenues of €3.877 in 2010. Net profit was up over 25% on 2009 figures. According to the company’s annual report, over 75% its sales in the same period were in North America and Europe, meaning the company will probably look for growth in other markets in the coming years.
Recent Movements to and from the Irish Stock Exchange
Proponents of closing the Irish stock exchange will point to the fact that no companies entered the exchange in 2010. This figure was down from 2 companies in 2009 and 4 companies in 2011. In fact, CRH – currently the largest Irish company on the exchange – has moved its primary listing to the London Stock Exchange since the last annual report was issued, making the case to shut the ISE even stronger.
However, in something of a consolation for the ISE, most of the companies exiting over the past 3 years have been due to nationalizations, bankruptcies or management and private equity buyouts. The nationalizations (and probably private equity buyouts) should be temporary as the government attempts to re-capitalize heavily indebted Irish banks. And it could be argued that the bankruptcies are a normal part of an industry cycle.
Companies to leave in 2010 included Waterford Wedgewood PLC (a crystal and ceramics manufacturer bought out by private equity), McInerney Holdings PLC (a building company, which over-leveraged during the Irish construction bubble) and Oglesby and Butler PLC (a profitable machine-tools operator which was bought out by management). The ESM also experienced two de-listings, which can be explained by management buyouts.
Brief Analysis of the ESM
Thus far, in discussing the history and current overview of the Irish stock exchange, we have been talking almost exclusively about the main securities market (the MSM). As mentioned above, there is also an Enterprise securities market (the ESM), which caters to smaller-sized companies and is often used as a first point of entry on the route to the stock exchange. Being smaller this exchange receives less coverage but adequate for our purposes.
The ESM is similar to AIM in the UK and as a first step to entering the MSM, requires members to meet a certain standard in factors such as corporate governance, investor relations, on-going disclosure and adherence to share-dealing restrictions. The exchange also requires members to appoint an advisor – a registered appointee of the Irish stock exchange who ensures that all aspects of the company are ready for listing.
Benefits to being on the ESM may include:
Access to a world class trading system. The Irish exchange being one of the first to adopt the Xetra trading system.
Raising a company’s visibility – particularly important for smaller companies – and providing index eligibility, meaning that the company will often be included in the funds of institutional investors by default.
An increased liquid market in the company’s shares.
Employee incentive schemes in the form of share options (particularly useful in cases of shareholder-agent problems).
At the end of 2010, the sectors which dominated the ESM were the mineral exploration sector and the financial sector (in the form of small to medium-sized investment companies). In particular the following:
Petroceltic International (€305.25m)
An upstream oil and gas exploration production company with interests in Algeria, the Kurdistan region of Iraq, Italy and Ireland. The company discovered a large oil well in Algeria at Ail Tsain in 2011 and Spain has just completed piping from Algeria, so this company’s immediate future looks promising. That said, the company had operating losses of over €10.000m in 2010, so revenue streams are urgently required.
Petroneft Resources (€329.24m)
Petroneft Resources is an oil and gas exploration and production company which focuses on exploration in the Russian Federation. According to the 2011 interim report, the company made an oil finding in 2011 with “potential to increase total reserves by 50%.” The company produced just under 400,000 barrels of oil in the first six months of 2011. They made pre-tax profits of $3.8m.
Origin Enterprises (€425.6m)
Origin Enterprises’ website says that it is “a focused agri-services group with interests in food and marine proteins and oils.” The group has operations in Ireland, the UK, Norway, Poland and Ukraine. In 2010, the group’s operating profit increased 29.2% to €80.2m, on total revenues of €1.257m. The group also paid down debts from €111.9m to €92.1m. This company seems more likely to be a takeover target than a future star of the ISE.
The Future of the Irish Stock Exchange
The Irish stock exchange has been nothing if not resilient. As we have seen, despite historically being a relatively poor performer, the exchange has been in existence since 1793, making it one of the world’s oldest. However, there are valid reasons for doubting its future status given how some of its larger members have pulled out in the past few years and trading has fallen so dramatically. We will now look at some of the factors affecting the future of the Irish stock exchange and examine some of the possible outcomes that await.
Business Environment
Every stock exchange requires a business-friendly environment. It is one of the fundamentals for a company to decide to list its operations. As long as Ireland can maintain its highly business-friendly environment, the Irish stock exchange has potential to survive. With a corporate tax rate of 12.5%, low levels of red-tape and corruption, Ireland is more business-friendly than most. It regularly makes the top-3 “most open economies” in the world, making it an attractive place for any company to list its operations.
Private Companies
Ireland is home to some large private companies, including the largest domestic heating company in the world and a retail company whose revenues are thought to run into billions of euro. Of course, it’s not certain if they’ll continue to be successful, if they’ll ever list their operations or if they do so, whether it will be on the Irish stock exchange. However, Companies such as Dunnes Stores, Glen Dimplex International, Boylesports and VHI insurance could provide a boost to the Irish exchange were they to list their operations in the future.
Foreign Takeover
As long as the Irish stock exchange continues to falter, it will remain a potential takeover target for stronger exchanges such as Euronext, the LSE and others. Such stock exchanges – themselves companies – could create a pan-national exchange that could avail of the 12.5% corporate tax rate available to companies in Ireland whilst remaining close geographically to London. Given the recent vogue for takeovers of stock exchanges, this is not beyond a possibility by any means but the number of shareholders (seven separate companies) of the Irish Stock Exchange may make a takeover more difficult.
Introduction of a Tobin Tax
Since before the financial crisis, successive US and UK governments have raised the possibility of introducing a “Tobin Tax.” That is, a tax on financial transactions such as share purchases. This tax is less likely to be introduced in Ireland as it would contradict policy in the Irish tax regime. If it was to be introduced in the UK, however, depending on its size, it could distort the financial markets somewhat. Any cross-listed shares on the ISEQ and FTSE would almost certainly experience a rise in liquidity on the ISEQ side (thanks to a zero-tax system).
Closure of the ISEQ
This has been cited by several analysts as a distinct and approaching possibility. In the past three years alone, the exit of large companies such as the McInerney Group, Irish Life and Permanent and Boundary Capital - as well as companies such as Arzyta and Tullow oil cross-listing on more prominent stock exchanges – paint a bleak picture for the existence of the Irish stock exchange. That said, the exchange has endured lean periods before and has been historically successful at re-defining itself. We view this outcome as less likely to occur in the short to medium term, despite the tough present conditions.
A Change of Strategy
This could be viewed as something of a “one fits all” response to what will happen to the Irish stock exchange. In saying that, a change of strategy for the ISEQ is somewhat inevitable, given the difficulty it finds itself in. The exchange will likely reposition itself as a specialized exchange to cater for international SMEs who don’t receive the same analyst attention on larger exchanges in London and New York as well as offer an increased range of services to members such as debt issues and perhaps even foreign currency exchange. Price competition with other exchanges will continue to play a large factor in its immediate future. Other creative avenues the exchange might look into are to offer a “no frills” European listing for non-European firms, perhaps as a stepping stone to a major European stock exchange.
Britain’s Future
As always, Ireland’s future and by default, the future of its stock exchange will depend on Great Britain. The latest friction between Britain and the European Union over fiscal union could complicate matters down the line for the Irish Stock Exchange. Alternatively, depending on how it affects companies listings (if at all), it could be an advantage.
Concluding Remarks
We have seen that the Irish Stock Exchange has been an important dimension of the Irish economy for an extended period of time. It is our contention that larger questions surround the Irish economy, which has external debt of nearly €2 trillion16 than surround the stock exchange itself, which is still a profit-making enterprise. It is home to stock market darlings such as Kerry Group and Ryanair among others. The Irish Stock Exchange has evolved substantially, even by international standards, and we believe that it will continue to do so successfully for the foreseeable future.
Bibliography
Dimson, E., Marsh, P. and Staunton, M., (2002), “Triumph of the Optimists: 101 Years of Global Investment Returns,” Princeton University Press.
Thomas, W.A., (1973), “The Provincial Stock Exchanges,” Routledge Press, ISBN 9780415382656.
Thomas, W.A., (1986), “The Stock Exchanges of Ireland,” Oxbow Press, ISBN 9780905205342.
Whelan, S., (1999), “From Canals to Computers: The Friends First Guide to Long Term Investment in Ireland,” ISBN 0-9535887-0-X.
The Irish Stock Exchange Annual Report 2010
Various Company Annual Reports 2010 (including all featured in profile of MSM and ESM)
Archives
The Irish Times Archive (1859-2000).
Websites
www.bis.org
www.businessandfinance.ie
www.economist.com
www.finance.yahoo.com
www.independent.ie
www.irisheconomy.ie
www.irishfunds.ie
www.irishtimes.com
www.ise.ie
www.lse.com
No comments:
Post a Comment