Business Irish

Thursday 27 October 2016

ISEQ posts worst week since Euro stocks began their drop

Irish shares lost 3pc, with Malin and Smurfit Kappa losing biggest, says Gavin McLoughlin

Published 10/07/2016 | 02:30

All is uncertain, and the markets hate that
All is uncertain, and the markets hate that

The Iseq index of Irish shares posted further losses this week, performing worse than the previous week on the back of uncertainty caused by the effect of the Brexit vote.

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The index closed at 5,580.42, its lowest Friday close since January 2015, losing almost 3pc on the week.

Malin was the biggest loser in Monday to Friday trading, down just over 9pc. Smurfit Kappa, which has been heavily hit since the referendum, lost 6.3pc, while Ryanair lost 5.2pc.

Dalata and Kingspan recovered some lost ground, up 3.9pc and 2.7pc respectively.

In a quarterly update Merrion Stockbrokers said investors in Irish equities should be cautious with slowing global growth allied to the Brexit result.

"We lower our Irish equity coverage 2016 net income growth by circa 4pc on average as a result of sterling translation for UK-exposed companies. We continue to show a preference for domestic Irish Reits and move overweight (see better value in) consumer staples as we expect further weakness, with ISEQ likely to test the 5,100 level once again," Merrion said.

"At the moment, our base case is that the UK will avoid a recession but as discussed, the outlook is far from certain," it added.

Among its top picks were IRES Reit, Green Reit and Fyffes. The FTSE 100 was up marginally on the week after a stellar rebound the previous week.

European shares rebounded for a second day last Friday, extending gains after a US jobs report showed an improvement in US hiring, with Italy's benchmark gauge surging the most since April. In a broad rally, the Stoxx Europe 600 Index added 1.6pc at the close of trading in London, trimming its weekly decline to 1.5pc. Payrolls in the US rose by the most since October and exceeded the highest estimate in a Bloomberg survey.

"You saw an up trend immediately after the figures were announced," said Guillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany. His firm manages about €250m. "It's more the short-term money that was playing the figures, and it will take a bit of time for the market to digest the news."

Banks and automakers rallied the most since June 20, with Italian lenders sending the nation's FTSE MIB Index up 4.1pc. Fiat Chrysler Automobiles and Renault jumped more than 5.7pc after data showed China's car sales grew faster in the first half of the year. Energy producers erased an earlier slide.

While equities are rebounding, concern over the strength of the Italian banking system and the repercussions of the UK's vote to leave the European Union hit the market, sending European shares for a fifth weekly drop in six.

Earlier this week, lenders in the Stoxx 600 hit their lowest levels since the height of the region's crisis in 2011, insurers fell to an almost three-year low, and property-related stocks in Britain sank as several funds suspended withdrawals.

Italy's Banco Popolare surged 18pc after saying its own stress tests showed "resilience" to adverse shocks. Banca Popolare dell'Emilia Romagna climbed 16pc as its chief executive officer said its stress tests are "going well," and Banca Monte dei Paschi di Siena added 5.5pc after reaching a record low. Its chief executive officer said the lender is working "intensely" with authorities to quickly resolve its bad-loan burden.

To JPMorgan Asset Management, valuations for European equities look attractive when their price-earnings ratios are adjusted for inflation over the past 10 years. Stephen Macklow- Smith, head of European equity strategy at the $1.7 trillion asset manager, says Europe's recovery is still young and looks durable, making the region's stocks a buy.

A six-week surge by gold, the quintessential haven investment, stalled on Friday after the better-than-expected US jobs data blunted global economic concern that has boosted safe-haven demand. Members of the Fed "are breathing a sigh of relief after this report, but the US economy and more importantly the global economy is still in a state of uncertainty," Chris Gaffney, president of EverBank World Markets in St. Louis, said in an email. Those concerns "will keep them from moving rates higher in 2016," he said.

(Additional reporting Bloomberg)

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