Stock markets investors should avoid Europe-wide shares for the time being, Merion Capital has warned, though a very small handful of Irish companies, including Fyffes and Irish Residential Properties REIT, may offer some shelter from further storms ahead.
Posting a 13% slump since June 23, the Iseq stocks index has been among one of the worst performing in the world because the collapse in the value of sterling exposes many stock market companies here
Darren McKinley at Merrion said the risks of downgrades meant so-called cyclical stocks should be avoided, as Europe readjusts to the long divorce process facing the UK and the EU.
Of the property REITS, he favours Irish Residential Properties REIT — the country’s largest private landlord with almost 2,050 apartments.
Meanwhile, “beaten-up” Bank of Ireland, which has lost 40% of its value since the Brexit vote, may suit investors with a long horizon who can look beyond the troubles facing European banks, including those in Italy, he said.
Bank of Ireland, whose joint venture with the UK Post Office leaves a fifth of its earnings exposed to the UK, has also been rocked by concerns over the Italian and other eurozone lenders. Its shares yesterday fell to 16 cent, a new three-year low.
For its “defensive qualities”, Merrion also likes Fyffes, even though 30% of its profits are exposed to the UK.
For comparison, Origin Enterprises—whose shares are down 20% since June 23--has 55% of its earnings exposed to the UK.
Shares in C&C, which are down 11%, has about 40% of its earnings exposed, while shares in Applegreen, with 35% of its earnings generated in the UK, are down 9% since the UK referendum vote.
“The game changer [for shares] would be if European governments pumped in fiscal stimulus,” Mr McKinley added.
The pressure was maintained on Irish companies and exporters yesterday. Sterling traded as low as 86 pence against the euro before settling at about 85.4 pence, its lowest level since September 2013.
The slump in sterling will have eroded the price competitiveness of Irish firms selling goods and services across the Irish Sea.
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