Trends point to strong equity gains through end of year

Investor: Return statistics for the third quarter of the year show that it was quite a good period for most equity investors. In fact the 3 per cent rise in the S&P 500 index was the strongest third-quarter gain in the American market since 1997.

Despite this, 2005 has not been a good year for the US stock market with the S&P 500 only up by 1.4 per cent year-to-date.

However, the fourth quarter tends to be the best-performing quarter of the year, so if this seasonal pattern is repeated this year, then 2005 might just deliver moderately respectable returns to investors in the US equity market.

Returns in Europe and Asia have been much stronger and the good third quarter means that most European and Asian markets are sporting double-digit percentage returns for the first nine months of the year.

The Japanese market is now up by 18 per cent, which just shades the 17.9 per cent year-to-date gain from Europe's FTSE E300 index. The UK's FTSE 100 is not far behind with a gain of 13.8 per cent while the Iseq Overall index has lagged with a year-to-date rise of just 10.3 per cent.

The high-profile collapse in the Elan share price accounts for most of this Iseq underperformance. At the beginning of the year Elan was one of the largest market constituents as measured by market capitalisation. The sudden withdrawal of its multiple sclerosis drug, Tysabri, led to an immediate collapse in its share price.

Over the past six months the shares have recovered some lost ground and have more than doubled from their low point. Despite this the shares have still lost two-thirds of their value so far this year.

If Elan were excluded from the calculations it would leave the Iseq with a year-to-date gain of approximately 18 per cent, putting it in line with the European average.

Whilst Elan brings up the rear in the performance tables, Trinity Biotech tops the performance league with a year-to-date return of 150 per cent. Capitalised at under €100 million, Trinity Biotech is a developer and marketer of human diagnostic products. It has manufacturing facilities in Dublin, New York, California and Germany.

Given this year's surge in the oil price it is not surprising to see Tullow Oil featuring in the leading stock market performers with a 2005 gain of over 70 per cent. Several astute acquisitions over recent years means that Tullow is now one of the UK's largest independent oil and gas producers. It has gas-producing assets in the North Sea and light oil producing assets in west Africa.

The 75 per cent year-to-date gain in IFG, one of the market's smallest stocks, makes it the best-performing financial stock in the market.

IFG is capitalised at under €100 million and provides financial services and international trustee and corporate services in Ireland and the UK. The company experienced very difficult trading conditions in 2002 and 2003 and this year's performance represents the beginning of recovery from depressed levels.

Amongst the mid-caps, Jurys Doyle stands out with a year-to-date gain of over 50 per cent. The takeover battle for the company has not yet been resolved but the company is destined to exit the market in the near future. Long-term shareholders will, however, have been well rewarded.

C&C and Eircom, two stocks that only recently listed on the market, have both performed well this year. C&C has delivered a stellar return of over 60 per cent as profits have risen due to the strong performance of its cider drinks. Bulmers in Ireland and Magners in the UK have gained market share against all comers.

Eircom's share price has been volatile in 2005 but the successful re-entry into the mobile market through the acquisition of Meteor has restored investor confidence.

The accompanying rights issue has been well received by domestic and international investors and the shares seem set to perform well over the remainder of the year.

Strong economic growth in Ireland and stable European interest rates have provided a positive backdrop in 2005. Investor expects a good fourth quarter to result in overall Irish market returns of close to 15 per cent for 2005.

If Elan is left out of the equation, Irish stocks have performed well this year, with the Iseq putting on a year-to-date gain of approximately 18 per cent, in line with the European average. Prospects for the rest of the year are strong, with an overall market return for the year of close to 15 per cent likely.