Taking a gander at the list of returns for each country’s major stock market index, I was drawn to the few entries in red at the bottom. Out of some 90 or so markets, only 16 had down years in 2007 (through the end of last week). The U.S. entry, the Standard & Poor’s 500, notched a weak gain of +5.48%, well down the list. Zimbabwe, Ukraine and China topped the list.
But my eyes were drawn to the very bottom. Where were the toughest markets in 2007? Venezuela, down almost 30%. Sure - they’ve got the Chavez troubles going. Estonia was down almost 15%. Ok, that’s a frontier market, a bit riskier than your average developed country. No big surprise to see it having down year.
And then there’s Ireland, third-worst market in the world, down 26%. Ireland? Really? The Celtic Tiger? European home to Intel, Motorola and every other tech giant? How can that be? Well, turns out despite what some Polyannas here in the States say, that those housing bubbles can be damaging to one’s economic well being. A tidy Bloomberg wrap-up notes that property prices climbed fourfold over the past 10 years. With the European Central Bank raising rates over the past two years, though, Irish real estate prices have reversed course. The rising value of the Euro has also hurt the country’s exporters, like Waterford Wedgwood Plc, the dominator of wedding gift registries everywhere.
Still, not everyone is a pessimist for 2008. Dan McLaughlin, chief economist at the Bank of Ireland, expects the stock market will start looking ahead to better days soon. In essay published a few weeks ago, McLaughlin argued that the stock market drop was exaggerated by hot money flows from hedge funds. Looking at future economic growth, he doesn’t expect the market to stay weak:
An alternative approach to the drop in Irish equities is to ask whether the market price of the major quoted companies reflects a reasonable or plausible projection of the likely path of the economy. On that basis, it is hard to reconcile the price moves with the current economic situation — or indeed the consensus view of the next few years. We know that the Irish economy grew by 6.7pc in the first half of 2007 and that, in the main, the economic indicators available since then point to only a modest slowdown.
Playing for a bounce back in Irish shares isn’t easy. There’s no U.S. exchange-traded fund tracking the Irish market, as Tom Lydon over at the ETF Trends web site pointed out yesterday. There is a closed-end fund, the New Ireland Fund (Symbol: IRL). The fund, up 53% in 2006, lost 17% this year.