The lrish Stock Exchange

"Your Irishman is not an investor. He's a punter." By Giles Merrit

"WE ARE a nation of punters, " said the stockbroker. "It's much more fun to pick a winner than go into some ano~yymous unit trust." and in another office just a few hundred yards from Dame Street, the manager of one of Ireland's few unit trusts agrees: "Your Irishman is not an investor. He's a punter."

That word punter keeps cropping up among the Dublin money men, and no wonder. This summer Irish stocks and shares have taken off in a frenzy of buying that owes more to business activities at Galway races than to the discreet image the financial world likes to cultivate. To the undisguised pleasure of all concerned, Irish equities and gilts have been forging ahead at a smarter rate than their British counterparts on the London Stock Exchange. And that is some going, for until the present pause for breath the City had been ~nnjoying quite a spree as investors ~urned to regain all the ground lost durmg the recession. But, if the FT all-share index has rocketed by about 40 per cent its Irish equivalent, the Dudgeon Combined Share Index, has outstripped it and risen by around 50 per cent.

From a slow start at the beginning of this year the Irish recovery has b~en dramatic. The overall value of the Irish market has come close to doubling itself, with Irish equities now worth almost £600m, or £250m more than at the end of 1976.

It all sounds exciting stuff. But if you have never owned a share in your life, or at any rate in recent years, don't feel that you have missed out too badly because capitalism hasn't been a lot of fun of late. To have made any real money on the stock exchange investors would now need to see the various indices at twice their present levels - the FT index at around 1,000 rather than the 500 at which it is hovering and likewise, say, The Irish Times-CARA index even though it has hit 160 from its early 1975 low of 62. The snag, of course, is innflation so that while a share may now be back at its mid-1975 price, or higher, the real value of that price has been eroded by four years of high inflation.

If your brand of money management has been to spend every penny earned, and then some by borrowing more, feel free to congratulate yourself on finan~ial acuity. The average inflation rate durmg the slump started off by the Octo~er 1973 Yom Kippur war and the ensumg oil crisis has been higher than the interest rates you will have been paying on your overdraft. Governments tell a slightly different story and try to persuade people into saving during times of hyperrinflation - for a start, taking cash out of circulation helps to cool down an economy that is being overheated by inflation. It is not the advice that a bank manager would give, and it leaves so~~~thing to be desired in the way ?f CIVIC responsibility in that borrowmg to spend aggravates inflation, but it is the best tactic to avoid being hit.

But the inflation crisis looks like coming under control, and even if Fianna Fail's confident predictions of a seven per cent inflation rate in 1978 are somewhat wishful, the chances are It will be down to single figures and people will be looking for investment opportunities. Those people - and it seems they are many, even in Ireland where savers are compaatively rare - who have been keeping money in deposit accounts because they never thought to subtract the inflation rate from the interest rate they were receiving will now be looking for a new home for-their cash.

With bank interest rates falling, and there being increasingly less advantage in the profligate technique of being in the red, it is worth taking a look at the Irish stock exchange. It has not been all that attractive in the past to small investtors, nor to small companies either, but the new Government clearly has plans to give it a boost by reviewing t~e present capital gains tax structure It IS not so much that Fianna Fail is traditionnally seen as the 'businessman's friend " but that the government needs to get industrial activity and therefore new employment moving quickly and sees the stock market as a neglected area in Ireland's financial set-up.

Of the 100-plus companies quoted on the Irish exchange, only 20 or so are actively traded and make up the present boom. The rest are considered too small and risky to be worth buying and so apart from the odd transaction, they stagnate. Instead of getting the capital they may need to finance expansIOn from private investors, these stock market cinderellas go to the banks. There is nothing wrong with that, in principle, except that Ireland requires a high and sustained growth rate over the next 12 years and more to get the country out of economic trouble, and needs other sources of investment funds than the banks.

Finance Minister George Colley is clearly concerned that the Dublin exxchange is at present not· fulfilling its true purpose. He mayor may not agree with some observers who reckon that it has become a tight and incestuous circle of big companies and purely institutional investors, but he recently told a stock exchange dinner that Irish industry has for some time raised very little from the market in terms of new funds. And the vicious circle, as he pointed out, is that 'unless there is a healthy secondary market already operating for existing issues, new issues are unlikely to be successful'.

Until Mr. Colley's reorganisation of capital gains taxation comes about, and it looks as if he will be making an effort to favour the small investor, gilts and the Top Twenty companies remain the best bet. An alternative is of course the handful of unit trusts that are beginning to get well established in Ireland. l<~or the true punter, though, there remams the lure of the four-fifths of the stock exchange list that is disdained by both stockbrokers and the investment managers of such institutional investors as insurance companies and pensIOn funds. Glancing down the list of these small and forgotten equities I could not but wonder how many of them were sitting on undervalued assets and yet had enough of their shares unaccounted for to make them vulnerable to a deterrmined takeover bid, Buying cheap into a company and then being wooed by bid and counter-offer in a takeover battle that sends the share prices rocketing must be any punter's dream.

Giles Merrit is the Financial Times corrrespondent in Ireland.