By Eamon Quinn
Davy stockbrokers said “oversold” Irish shares may “bounce back” by the end of the year, but others are more cautious unless there is a breakthrough deal in the Brexit talks over the border in the next two months.
The Iseq index, which was already among one of the worst performers in Europe, fell a further 1.5% yesterday to peg its losses at almost 15.75% since the start of the year. The re-emergence of concerns over the Italian budget amid a renewed global shares sell-off gain rattled investors in the Irish market.
That’s because the companies that make up the Iseq index have been hit by an unusually toxic mix of concerns over everything from Italy’s budget, the trade spats of US President Donald Trump, as well as investors worrying that the earnings of Irish companies, including Bank of Ireland and ferry firm ICG, could be overly exposed to Brexit.
The disruptions of sterling against the euro caused by the almost daily political drama in Whitehall amid fears for the toppling of UK Prime Minister Theresa May have only added to the concerns of investors in Irish stock market-listed companies.
Sterling has slumped from 76p to 88p against the euro since the UK referendum in mid-summer 2016, disrupting plans and eroding profits margins of many small Irish firms selling across the Irish Sea into Britain.
It has raised also fears in investors’ minds for Irish firms exposed to any UK consumer spending slowdown, as shoppers face higher inflation from the slump in sterling.
Davy said the Iseq “looks oversold” and “could be due a bounce back”.
The Iseq losses make Ireland “one of the poorest performing markets in Europe this year”, said the broker, which “is surprising given that the Irish economy is set to be one of the fastest growing in the region over the next two years”.
“A combination of stock-specific issues, an overly negative outlook for the Irish housing market, and Brexit are the key reasons for the underperformance,” said Davy.
“While the impact of Brexit remains unclear, stock-specific issues look to be improving and we believe the strong underlying fundamentals of the housing market will reassert themselves.
“This implies a lot of potential value-opportunity in the Irish market as we head into the last two months of 2018.”
Other analysts are less sure.
Owen Callan at Investec Ireland said making a call on the direction of Irish shares in the coming months is difficult because European markets have been weighed down by the Italian budget clash, as well as fears over the Brexit talks.
Since the summer, European banks sold off again, influenced by Italy, the Trump administration in the US, and Brexit, he said, adding that until Brexit and Italy clears, it is hard to see how it will bounce back.
“A Brexit deal could certainly see a strong rebound before the end of the year,” said Mr Callan.
Merrion chief economist Alan McQuaid said some sort of rebound was still possible for Irish shares before the end of the year but that the outlook for next year is looking “far from rosy”.
“Many people believe the Iseq could rise,” said Mr McQuaid. He pointed to a backdrop of fears over US Federal Reserve interest rates hikes, emerging markets, Italy, a potential slowing in economic growth in China, and Brexit for tempering any outsized optimism.