Irish stocks slid this morning after polls put Sinn Féin in place for a possible role in government, fueling declines in banks and property shares given that the party’s policies include a wealth tax and a freeze on residential rents.
The benchmark ISEQ Index slid as much as 1.4%, with Bank of Ireland Group Plc and AIB Group Plc falling as much as 7.8% and 6%, respectively. Among real estate stocks, Irish Residential Properties REIT Plc slid as much as 8.3%, the most since June 2016, while Glenveagh Properties Plc fell 7% and Cairn Homes Plc dropped as much as 6.2%.
Polls indicate that no party won a majority in Saturday’s election after a surge in support for Sinn Féin, whose economic policies are more left-wing than those of Ireland’s other two main political parties, including a public housing program and lowering the retirement age. Talks on government formation will likely begin in the middle of the week, with attention focusing on the role Sinn Féin might play.
Bank stocks are particularly in focus as Sinn Féin seeks to raise revenue from increases in the bank levy and halt the ability to use deferred tax assets, according to Davy analyst Diarmaid Sheridan.
Also negative for the sector would be the party’s plans for greater intervention in areas such as loan pricing and retaining the state’s majority stake in AIB, Sheridan said in an email.
Policies on mortgage rates may also be a focal point for investors in bank stocks, as well as corporate and general taxation concerns, according to Goodbody analysts led by Eamonn Hughes.
“The fact that both Fianna Fáil and Sinn Féin are focused on mortgage rates will also likely drive investor concern on rate implications for the banks,” Hughes wrote in a note. “All in all, share prices of the sector are likely to struggle in the days ahead.”
Property stocks are also under pressure. Some of Sinn Féin’s housing policies, such as cutting Help to Buy, increasing social housing provision on sites to 25% from 10% and initiating a rent freeze would “ultimately be negative for supply,” according to Davy analyst Colin Sheridan.
While these stances are likely to soften in prospective negotiations with the opposition Fianna Fáil party, “the length of these negotiations will also impact stocks in the sector and country more generally,” he said in an email.