JP­Mor­gan sees Ir­ish stocks up­stag­ing UK post-Brexit

Gulf Times Business - - BUSINESS -

The fu­ture of the Ir­ish bor­der has been a fo­cal point of Brexit ever since the UK voted to leave the Euro­pean Union al­most 28 months ago. What’s gar­nered less at­ten­tion is the im­pact the event will have on stocks traded in Dublin.

But a new po­si­tion taken by an­a­lysts at JP­Mor­gan Chase & Co is spec­u­lat­ing Ire­land will out­shine Bri­tain af­ter the divorce.

JP­Mor­gan moved to “over­weight” on small- and mid­caps in Ire­land ver­sus the UK, bet­ting the eq­ui­ties will out­per­form sim­i­larly-sized Bri­tish com­pa­nies, ac­cord­ing to a re­port pub­lished on Wed­nes­day. While many com­men­ta­tors sug­gest Brexit will have a neg­a­tive im­pact on the Ir­ish econ­omy over­all, the bank’s strat­egy will pay as long as the na­tion’s stocks fare rel­a­tively bet­ter.

Rat­ings on the Ir­ish stock mar­ket are un­usual among tier-1 in­vest­ment banks. Of five sur­veyed by Bloomberg, none had a rat­ing on Ire­land. Cov­er­age of in­di­vid­ual Ir­ish stocks is bet­ter, but still rel­a­tively low com­pared to the UK.

An av­er­age of six an­a­lysts cover each stock listed on the Ir­ish Stock Ex­change Over­all In­dex ver­sus 11 for the UK’s FTSE All-Share In­dex, ex­clud­ing listed in­vest­ment trusts and funds, ac­cord­ing to data compiled by Bloomberg.

The stocks listed on Dublin’s main mar­ket had a com­bined value of about €104bn ($120bn) as of Oc­to­ber 10, ac­cord­ing to daily sum­mary from Euronext.

That com­pares with about £2.5tn ($3.3tn) for com­pa­nies on Lon­don’s FTSE Al­lShare gauge, data compiled by Bloomberg show.

“The Ir­ish mar­ket is both cheap and grow­ing in value,” JP­Mor­gan’s Ed­uardo Le­cubarri, the bank’s head of SMid strat­egy, said in a phone in­ter­view. “But it’s also small.”

Yet, the Ir­ish mar­ket’s size may work in its fa­vor as some in­vestors are at­tracted to the greater volatil­ity of a smaller ex­change, ac­cord­ing to JP­Mor­gan. “It takes very lit­tle to make the stocks move,” Le­cubarri added.

It hasn’t been plain sail­ing so far. The 45-mem­ber Ir­ish Stock Ex­change Over­all In­dex has fallen more than 5% since the June 2016 ref­er­en­dum, while the STOXX 600 Europe bench­mark has gained about 4% and the FTSE All-Share gauge around 11%.

A Fe­bru­ary re­port pre­pared for the Ir­ish govern­ment by Copen­hagen Eco­nom­ics es­ti­mated that Ir­ish gross do­mes­tic prod­uct will be 2.8% to 7% lower than the con­sul­tancy’s “non-Brexit base­line level” in 2030, de­pend­ing on the out­come of ne­go­ti­a­tions and the fu­ture trade deals bro­kered by the UK.

But, on a mar­ginal ba­sis, Ire­land’s strength as an EU mem­ber and the bloc’s re­la­tion­ships with emerg­ing mar­kets will out­weigh any loss of trad­ing with the UK, ac­cord­ing to Le­cubarri. “In any econ­omy, it’s more about open­ing up to the world, and open­ing up to the east, than it is about strength­en­ing ties with de­vel­oped coun­tries,” he said.

Mean­while, Le­cubarri said the level of progress be­ing made on a deal by UK and EU ne­go­tia­tors will have lit­tle im­pact on his Ire­land mid- and small-cap call.

“The re­al­ity is bet­ter growth, and cheaper and bet­ter bal­ance sheets, with a kicker,” he said. “What­ever hap­pens, it’s go­ing to be bet­ter on the mar­gin for Ire­land than it is the UK.”

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