Little Christmas cheer for Irish investors as stock decline continues

It has been a brutal month for equities – and one which leaves the Irish Stock Exchange languishing more than 25 per cent below its high for 2018, reached back in late January. Irish shares have lost another 7 per cent-plus in December, but their rapid decline since the early summer means losses in Dublin are way ahead of the international norm. Most of the gains made in the Irish market in the big bull run under way since mid-2016 have now been wiped out. With Brexit on the horizon – and potentially adding to losses in 2019 – it is a worrying time for Irish investors.

The sharp decline here has come from a range of company-specific factors and, notably, a lack of new investment in bank and property stocks. More recently, the Irish market has been caught up in a rapid international decline, fuelled by fears that the long recovery was coming to an end. The latest increase in US interest rates and rows over the federal budget have only added to nerves already on edge due to some signs of a growth slowdown and fears of a trade war. With the S&P 500 down some 10 per cent this month, it is on track for its worst month since the 1930s depression.

Growth

Few expect nerves to ease heading into 2019, though there are two different views on where the markets might be heading. In one view, the world economy may be slowing, but growth should still continue giving some relief for investors. The other view is focused on the risks – from possible trade wars, Brexit and the concern that the US slowdown could be sharper than feared, possibly even heading for a 2020 recession.

The sharp decline in Irish stocks seems counter-intuitive given the strength of the economy. Even excluding the multinational factor, economic growth here is well above the international average, and the corporate tax returns show that profitability is strong in general. However, the big Irish stocks are not attracting investment interest for a variety of reasons, and the risks from Brexit for those relying on the home market are likely to, at least, hold back any upturn in prices heading into 2019 or, at worst, spur another decline if we head towards a no-deal scenario.