Friends to cut its holdings in Irish equities

INVESTORS should sell Irish equities over six to 12 months, says Friends Provident and Eureko Ireland Holdings.

The investment team at the British owned life office is reducing its holdings in Irish equities in the short term. Head of investments Mr Pramit Ghose said the company would be investing in certain "good value companies" but that the major indicators of market value now imply the market is overbought.

However, he stressed that on a medium term view, Irish equities still took good value and the decision as purely a matter of timing.

The life office manages £900 million and is in third place in the life office lists, with a return of 5 per cent over the last three months, according to a recent survey from benefit consultants Mercer. Around 5 per cent of this holding is currently in cash and this will increase to 10 per cent over six months if the market does not fall, said Mr Ghose. A fall, on the other hand, would be a buying opportunity, he added.

Friends uses six main indicators of market value. Over the longer term, earnings growth, changes in short term and long term interest rates are the most important, according to Mr Shane Whelan, investment strategist. Over the short term, sentiment indicators such as institutional liquidity, directors' dealings and discounts on investment trusts take over.

The latter two do not count the Irish market because of quiddity and size of the market

The most bearish indicator on the Irish market now is institutional liquidity. Cash balances' were just 2.8 per cent of pension managed funds at the beginning of the year. The indicator is contrary in that the higher the level of cash in a managed fund the higher the possibility of a strong return on the stock market.

According to Mr Ghose, if cash is less than 3 per cent it is time "to watch out". Conversely, cash balances of over 9 per cent imply it is time to buy.