INVESTORS will enjoy another good year in 1997, with low inflation and only modest increases in international interest rates supporting further good gains, according to AIB Investment Managers (AIBIM).
In its annual forecast, the analysts predict that equity markets will continue to be a better bet than either bonds or cash investments, while the Irish property market can still deliver further good returns on the back of strong economic growth.
AIBIM also expects that European Economic and Monetary Union will go ahead in January 1999 and that Ireland will be a member even if the UK stays out. But it cautions that the currency markets will become very turbulent, with various currencies coming under pressure.
"1997 will be a turbulent year. The tide will come and go as various states wax and wane in terms of their love for EMU," said AIBIM's investment director, Mr Joe Costello.
The pound, because it is traded in relatively small volumes compared to other European currencies, will be vulnerable to attack from speculators, he said. However, he insists that the Irish currency has established a high level of stability in recent months, which should ease any such pressure.
Irish interest rates will hold steady at around current levels over the coming months according to AIBIM. The Central Bank, it said, is likely to resist downward pressure on rates to ensure that Irish inflation remains well within the criteria for joining EMU.
Rates in Britain and in the US are, however, likely to rise, with modest increases on the cards. UK rates, it said, are likely to tick up by about a quarter of one per cent, possibly early in the new year.
Interest rates in the US, it predicts, will increase by around a half of one per cent in the first half of 1997.
"In the next few years, the likelihood is that fluctuations in inflation and interest rates will continue to be narrower than in the 1970s and 1980s. On that basis, central banks are likely to be involved in fine tuning interest rates rather than changing rates aggressively," it states.
Modest increases in international interest rates, however, will not prevent further gains in equity markets at a time when corporate earnings are continuing to rise, according to AIBIM.
