Those caught up in the rollercoaster performance of Irish shares in the past week shouldn’t unbuckle their seatbelts just yet.
Divining for clues as to which way the Dublin market – the most hit globally in the immediate aftermath of the Brexit vote – is headed, Cantillon's interest was piqued by a few charts in a Deutsche Bank note on European equities on Wednesday.
Ireland’s Iseq, according to strategists at the German bank, is one of the less “defensive indices” in Europe. Stripping out the jargon, that means it faces being worst hit by any further political and economic uncertainty as the implications of Brexit are digested.
It stands to reason. CRH and Ryanair, both hugely dependent on the European economy, make up 43 per cent of the Iseq. Other top 10 companies, such as Bank of Ireland, Kingspan and C&C, have large exposures to the UK. Not the kind of stocks you seek out when you are looking for refuge from Brexit.
Could the 5.4 per cent rally by the Iseq, following a 20 per cent slump in the two sessions following the referendum, be short-lived?
Strangely, the UK, which unleashed turmoil across global markets last week, has one the most “defensive” indices, according to our friends at Deutsche Bank.
British American Tobacco, Guinness's owner Diageo and Reckitt Benkiser, the consumer goods company behind brands from Dettol disinfectant to Durex condoms, and GlaxoSmithKline, which makes Panadol and Volterol muscle pain reliever, are among the FTSE 100's top players.
While nobody is suggesting that anybody stressed out by the market vagaries go on a cigarettes and alcohol-fuelled sex binge – followed by reaching for GSK’s headache tablets – to unwind, these are the kinds of companies that tend to do well when everything else is tanking.
London-listed companies’ exports are also helped by sterling’s recent sell-off against the euro and dollar.
Although global markets expect Berlin to lead the way in plotting a course for how the UK extricates itself from the EU, Deutsche Bank has advised its clients to cut their exposure to German shares – which tend to fare worse than most when markets turn nasty.
And they will again, the strategists warn. Despite the European market’s rally over the past two days, they see stocks falling further.
