Last year was exceptionally good for Irish investors with the Irish equity market rising by more than 40 per cent while the bond and property investment segments also performed strongly.
An already good year was further enhanced towards year end by an investor-friendly budget which had the effect of further boosting equity prices. While the short term impact of the budget measures was pleasing, the longer term impact of the cut in the rate of Capital Gains Tax (CGT) to 20 per cent will be to increase dramatically the attractions of investing in the stock market.
As well as facing a more fiscally friendly environment in 1998 Irish investors will also face the final lap in the run-up to European Monetary Union (EMU).
While EMU will certainly create some problems which are difficult to foresee, the initial impact should be unambiguously good. Low interest rates underpin equity valuations and will sustain economic growth into the medium term.
However, of greater significance from an investment viewpoint will be the removal of currency risk to Irish investors of investing in Europe and the likelihood that greater European integration will lead to ongoing corporate restructuring throughout the Continent.
Private investors' horizons are likely to gradually widen to investing in an European portfolio of shares rather than being limited to the Irish and British markets. With this changing environment in mind I have chosen a portfolio of six European stocks for 1998. The shortlist includes two insurance companies, two telecommunications companies and two industrial shares.
The financial sector has seen significant rationalisation in recent years and this trend is likely to continue. Up to now the banks have been at the forefront of merger and acquisition activity and while there have been some developments in the insurance sector there is potential for restructuring within the European insurance business.
The Italian insurer, Assicurazioni Generali, is likely to remain at the forefront of the European insurance business. It has a market capitalisation of more than £13 billion and sells life and non-life insurance in more than 40 countries.
In comparison Irish Life is a minnow, but it does have the largest market share in the fast-growing Irish life insurance market.
Turning to industrial stocks, my list includes Siemens of Germany and GEC in Britain. Both of these are large companies capitalised at £23 billion and £12 billion respectively. Siemens is a household name and as well as household electrical goods it produces products and services in the areas of power generation, transmission and distribution.
It is also involved in communication networks, defence electronics, medical equipment and transportation systems. GEC is involved in a similar range of activities, but it has a greater emphasis on defence through its Marconi subsidiary.
Telecommunications is a growth sector throughout the world and investors are now spoiled for choice with the number of quoted telecom companies available.
Cable & Wireless offers exposure to both British and Chinese telecoms markets and offers attractive growth prospects. The Spanish company, Telefonica offers good value as well as the further attractions of Telefonica's Latin American interests. Its key partner in Latin America is the American company MCI.
My list for 1998, which barring unforeseen events will be the year when EMU becomes a reality, includes one Irish company, two British companies, an Italian insurer, a Spanish Telecoms company and a German industrial conglomerate. Happy investing.
