As Davy stockbrokers pointed out on Wednesday in a note to its clients, the 21 per cent fall last year in the Irish equity market (Iseq) appears to be “at odds with the ongoing strength in the economy”.
The Irish economy remains along the fastest growing in Europe, up 7.5 per cent last year with a further 5 per cent growth expected for this year.
Yet, the Iseq performance was far worse than that of many of its international peers in 2018.
For example, FTSE’s E300 index, which measures the 300 largest companies in Europe by market capitalisation, fell by just 9.8 per cent.
Not since the outset of the financial crisis in 2007, when the Iseq’s fall was roughly twice as precipitous as last year’s, have Irish public companies been so unloved by market traders relative to those of other countries.
Why?
The Irish economy may be purring along, but there is one huge and very obvious caveat: Brexit. Investors are terrified that a hard Brexit – no longer unimaginable scenario – will wreak havoc on the profitability of Irish listed businesses.
In rather understated fashion, Davy suggests in its note that Irish economic growth will be maintained in 2019 “subject to an ongoing fudge on Brexit”.
In reality, it is going to require the mother of all political fudges to chart a clear way out of the economic danger zone that the Brexiteers have created.
Still, Davy's analysts believe there are clear buying opportunities in companies linked to local housebuilding, such as Glenveagh Properties, consumer businesses, and other Irish firms with strong UK links, such as Irish Continental Group (the owner of Irish Ferries) and the building materials group Grafton.
If – and it is a big if – a durable Brexit solution is found by March that does not negatively affect Irish trade, then Iseq-listed shares may well end up among the bargains of the century.
But if the Brexiteer ideologues get their way and the UK crashes out with no deal, the Iseq’s 21 per cent decline last year may end up looking like a mere appetiser for the main event.
