Stock markets 'look set for continued rally despite Brexit threat'   

Investors have nowhere else to put their billions of funds to earn a return other than stock markets, says one analyst.

Peter Brown, founder of Baggot Asset Management.

Stock markets look set for a continued rally despite the huge economic damage afflicting businesses and unemployment hitting households, a leading Irish investment expert has predicted. 

Peter Brown, founder of Baggot Asset Management, said British assets could also be poised for a buying spree despite Brexit — such is the steep discount facing British shares and sterling — if a free trade agreement with the EU were finally done. 

He said that there are "phenomenal" prospects for stock markets and commodities through 2021 as markets bounce back from the Covid-19 economic crisis and from the tensions over Brexit.

The Covid crisis has meant that global central banks such as the ECB have needed to pump billions into bond markets to keep interest rates at rock-bottom levels and investors have nowhere else to put their billions of funds to earn a return other than stock markets. 

"It is literally down to the amount of stimulus being pumped out by global central banks including the ECB, and interest rates are zero," said Mr Brown.

 "The other main point is that there will be a big switch away from America because the US doesn't offer real interest anymore, but with no interest rates to be had, there is no point in being in American [assets] anymore." 

He said that as Covid-19 vaccines rolled out that spending and inflation will reemerge, which will lead to "an absolute explosion of activity". 

Nonetheless, the ECB will be forced to keep interest rates at low levels at least until 2022 and "we do not have to worry about interest rate rises just yet", he said. Mr Brown noted the current huge disconnect between markets and the economic pain inflicted by the Covid-19 economic crisis.

Meanwhile, uncertainty over the EU-UK talks unsettled markets today. 

Sterling weakened to 90.6p, as the British government and the EU continued to shout the odds for a successful outcome to the Brexit talks. In London, the Ftse-100 ended the day flat and with some losses across the week. 

"The next two weeks do have some bits of economic data, but are almost entirely devoid of any scheduled corporate news, leaving markets at the mercy of US stimulus talks and Brexit discussions," said Chris Beauchamp, chief market analyst at online broker IG.

"As a result, it is hard to argue against the idea that investors should take their foot off the accelerator with just two weeks left of the year."  

In Ireland, shares in AIB and Bank of Ireland slipped, eroding some recent strong gains, and some of the Irish property firms also fell back.    

Commodities rose on hopes that the vaccines would boost the world economy next year. Copper topped $8,000 a ton for the first time in more than seven years, also helped by continued optimism that US lawmakers are likely to deliver a much-needed virus-relief package soon.

Copper’s fierce ascent to $8,000 this week “is really boosted by hopes on the US stimulus talks” said TD Securities analyst Ryan McKay. 

The China recovery scenario, a weaker dollar, and green-inspired reflation wave have also lifted copper, he said.