After a nervous start to the week, the Irish market made steady gains through Tuesday, Wednesday and Thursday, buoyed by hopes of US interest rate reductions. But the week ended as it began with uncertainty about the global economic environment continuing to weigh on markets. Worries over the US hedge fund bailout hit banking stocks in particular.
The implications of the bailout of the Long-Term Capital Management (LTCM) hedge fund and Thursday's related announcement of a projected third-quarter loss by Europe's largest bank, UBS of Switzerland, have upset equity markets worldwide.
The $3.75 billion hedge fund bailout, which involved some of Europe's largest banks and meant a 950 million Swiss franc charge for UBS, has raised concerns about the stability of the global financial system. Investors fear that the profit warning from Europe's largest bank is the precursor of worse to come.
European stock markets slid on these fears yesterday, hurt also by the mounting number of corporate profit warnings. Coca-Cola was the latest to add to the gloom in the US corporate sector, warning yesterday of an earnings shortfall for the second half of 1998.
A drop in the dollar to its lowest point against the deutschmark since April 1997 also hurt European manufacturing companies, making their exports to other continents less competitive.
In Dublin, the ISEQ index of Irish shares shed nearly 1.5 per cent as banking shares, like those elsewhere, headed southward.
Many analysts now expect to see a downgrading of the sector as investors demand a higher risk premium. Although Irish banks are better positioned than those overseas, few expect them to remain immune to the general trends affecting banking stocks worldwide.
"A rising and lowering tide carries all boats," one dealer noted. On the Irish market yesterday, the leading financials closed lower with AIB down 40p at 940p, Bank of Ireland off 10p to £11.60 and Irish Life down 15p at 485p.
Among industrial stocks, Smurfit dropped 2p to 105p, CRH was down 8p at 825p and Greencore slipped 10p to 260p. Dealers said volumes remained relatively thin as many investors took to the sidelines.
"People remain very nervous about the market. They are afraid there will be more bad news out of the banking sector in Europe and the US," one trader said.
