Irish Life Investment Managers has warned against expecting a quick recovery in equity markets in 2008.
In its outlook for investment opportunities 2008, Irish Life Investment Managers says the first half of the year will be 'difficult' with continuing macroeconomic uncertainty and the prospect of earnings downgrades keeping equity investors on the 'back foot'.
Irish Life Investment Managers' senior equity strategist, James Forbes, anticipates a more positive global economic backdrop in the second half of 2008 on the back of falling interest rates in both the euro zone and the US.
James Forbes says that Irish shares - and banks in particular - have been treated very harshly in the last few months. He points out that the Irish financial index fell by 33% despite having almost no exposure to US sub-prime mortgages. He says this compares with the US banks index declining by just 18% despite write-offs of over $150 billion.
The strategist says that the Irish equity market is currently trading at a discount of about 25% to euro zone markets, but says he expects that this gap will be closed over the next 18 months as more positive economic newsflow begins to filter through.
However, he adds that the continuing slowdown in housing construction will impact growth in the Irish economy this year. He also predicts that the Irish consumer will be 'less resilient' than previously as the SSIA effect fades, higher interest rates and more subdued employment growth takes effect.
Mr Forbes predicts that the US economy will experience a significant slowdown in growth in the first half of the year and says that the risk of a recession has increased. He anticipates earnings growth in the mid single digits in the euro zone in 2008.
