The Irish Stock Exchange has been on an interesting journey during 2019, writes Joe Gill.
At the time of writing, the Iseq index had risen 15% year to-date but that belies deep differences within the market’s constituents.
Broadly, companies with exposure to the Irish economy, and those deemed to have Brexit linked risks due to their UK operations, have been out of favour with investors.
In contrast, companies that have true global footprints have found strong demand for their shares, helped by US indices hitting all-time highs.
At a detailed level, companiesincluding the housebuilders, hotel group Dalata, ferry company ICG and the Irish banks have endured weak or sharply falling share prices this year.
Some of this can be attributed to sector specific issues.
For example, falling long bond yields are making it more difficult for banks to grow profits and that has made them less attractive all over Europe.
However, worries about the prospects for the Irish and UK economies dominate the debates that analysts and equity salespeople are having with institutional investors.
Shares in international companies such as Kingspan, CRH, Kerry Group, and Smurfit, have risen strongly this year as they benefit from bullish US equity markets and broadly diversified earnings.
Even though headline GDP andinflation data in Ireland has been supportive for some time, it is the risk of a sharp slowdown that troubles investors.
A gradual weakness in the global economy is one factor but it is Brexit that has now moved front and centre as a core issue.
The growing determination of the Conservative Party front bench to leave the EU by October has led to real damage to both economies.
Car giant PSA, which owns Peugeot and Opel-Vauxhall, has warned it may close its main UK car manufacturing plant if a no-deal Brexit were to occur.
I expect PSA’s warning to befollowed by alerts from a slew of other companies as they prepare for the worst possible Brexit outcome.
Sterling has also come undersustained pressure as the October deadline approaches and the UK digs into its hardline trench.
When sterling falls it hurts all the Irish exporters selling into the UK.
It also makes Britain much poorer and sparks price inflation for its households.
If the new UK administration does manage to construct some alternative form of the backstop to facilitate the withdrawal agreement, I suspect that will only herald the start of the UK’s troubles.
A fractious exit in October will only make the job of negotiating a way to reengage with the EU significantly more difficult.
Already, many EU countries are angry with the UK’s attitude and its rhetoric over Europe.
How easy will it be to have all the EU parliaments to pass an act that allows the UK to have new access to the single market in a couple of years’ time?
As this crisis unfolds, Ireland will be increasingly buffeted by exchange rate swings and a downdraft indemand for goods and services from its nearest neighbour.
A valiant amount of work has been done to develop export markets for Ireland outside the UK — and that will be critical to how the Irish economy performs.
Some sectors, however, including the food industry and small companies with high exposures to Britain, will struggle.
This volatility once again underlines the value of individuals and businesses to secure solid finances to manage through the crisis.
In 10 years, the UK will still have a large population with a developed economy which needs all forms of products and services.
Under the worst-case event of a crash-out Brexit there will continue to be opportunities for Irishcompanies to serve that economy.
UK exporters will also want to serve Irish companies and consumers.
Being ready and able to invest amidst this crisis will be a test for both entrepreneurs and the Irish economy.
Joe Gill is director of origination and corporate broking with Goodbody Stockbrokers. His views are personal.