Earlier this year, Ireland commemorated the centenary of the Easter Rising — the rebellion that set it on the path to independence from Britain. For the country’s investors, a more recent “independence day” has been a rather less happy occasion.
Between the close of trading on June 23 — the day of the UK’s referendum on EU membership — and the close on June 29, the ISEQ Overall share index dropped more than 12 per cent. That is worse than any other major European stock benchmark and more, in local currency, than even the UK-centric FTSE 250. In euro terms, the FTSE 250 fell by more than the ISEQ, although not much more.
Aside from the UK itself, Ireland has the most to lose from Brexit. The Economic and Social Research Institute has estimated that each percentage point reduction in UK GDP knocks 0.3 points off Ireland’s.
But the links are not as strong as they were. About 15 per cent of Ireland’s exports go to the UK, whereas it used to be half. And Ireland’s economy has been powering ahead: it grew by more than 6 per cent last year.
Also, what applies to the broader economy does not always apply to the stock market. Esri’s analysis found that the impact of Brexit would be more acute for smaller companies. Ireland’s largest listed companies — the top five account for almost three-quarters of the stock market’s capitalisation — are more international. Sterling revenues vary: 28 per cent of the total at food group Kerry, about the same at Ryanair. At building materials group CRH, the Americas account for twice as much profit as Europe. Many of the sterling-dominated companies, such as Paddy Power and Grafton, have moved their primary listings to London.
What, then, might explain the index fall? Ireland’s stock market is small: the FTSE 250’s capitalisation is almost five times that of the ISEQ Overall. That could have exacerbated the decline. In times of stress, investors sell the stocks they can, not necessarily those they should.
The Easter Rising ended in defeat, yet within a decade Ireland achieved independence. Now, Brits are queueing for Irish passports. Brexit could be nasty for some Irish companies, but the latest steep declines seem to be pricing in an awful lot of bad news. Things should get better.