THE EVER-SHRINKING IRISH STOCK MARKET!
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9th June 2021
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The Irish stock market (once known as the Irish Stock Exchange, and now as Euronext Dublin following the recent takeover by Euronext which also operates markets in Amsterdam, Brussels and other European centres) just keeps getting smaller and smaller these days.
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That might look like bad news for investors in the Irish market, but it isn't. If this trend continues, it will actually be good news for investors for the following reasons:-
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Firstly, many of the companies delisting from the market are leaving with their share prices at record highs, as they have attracted takeover bids. Abbey, Applegreen, CPL Resources, Green REIT have all attracted takeover bids in recent times, mostly at substantial premiums to their then share prices. That is a strong indicator that Irish stocks are cheap, and that more takeover activity is likely.
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Secondly, even when companies decide to cancel their Irish listing - which usually results in their sole listings then being on the London market - that also turns out to be good news for shareholders. We have seen this with Grafton Group and C&C. When they announced the cancellation their Irish listings, their share prices received an immediate boost. Why? Because all Irish companies traditionally had a dual listing on the London market. They were considered as 'foreign' stocks in the UK as a result, and therfore were not eligible for inclusion in UK stock market indicies.
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By cancelling their Irish listing, these Irish companies then qualify for inclusion in the various UK stock market tracker indicies, and this leads to buying from UK tracker funds thereby pushing prices up. Yes, Irish tracker funds will sell, but there are far more of the former than of the latter.
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Thirdly, the fewer the number of stocks that are trading on the Irish market, then the higher the demand is likely to be for those stocks. That is a simple case of supply and demand. The Irish investment institutions will have a certain amount of their funds invested in Irish stocks, and when they receive cash for some of these due to a takeover, then they are likely to reinvest that cash elsewhere in the Irish market.
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In general, when more and more new companies list their shares on a stock market, usually by means of an initial public offer, then the market becomes more vunerable to a downturn. This is because buyers have to be found for all of these new shares.
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The 2001/2002 dot com crash was not caused by any specific event, such as an unexpected increase in interest rates or a major player going bust etc. It was caused by too many new technology companies coming on to the market, and this extra supply of new stock was not matched by sufficient demand from investors to keep prices moving up.....We certainly do not have that problem with Euronext Dublin!
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My recent review of all of the charts for the Irish stocks indicated a market that is in robust health. 32 stocks have a bullish (ie positive) outlook and only 8 have a bearish (ie negative) outlook, per the charts.
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The Irish stocks that currently merit a rating of 'very bullish' based soley on technical analysis are:-
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1. CRH
2. Grafton Group
3. Smurfit Kappa
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Nothing too daring or surprising about a probable recommendation for those stocks, as they have been reasonably good perfomers for many years.
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However, I must give an honorable mention to two stocks that appear to be rising from the Land Of The Living Dead; AIB and Aryzta. I highlighted these in my email message when I sent out a notification for my previous update of the Irish shares in December 2020, stating that these charts had suddently turned bullish - after a prolongued and devastating share price collpase.
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My comment then was that I expected most of you to disregard any favourable comment on these, such is their toxic reputation with investors due to their unfortunate history. I added that this was all the more reason to buy them, based on my experience of 25 years in the broking business - the most unpopular recommendations are almost always the best ones!
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Sure enough, then have since clocked up gains of 58% and 83% respectively in less than 6 months!
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I will follow up shortly with a further article examing the fundamentals of the stocks mentioned above - continuing the unique feature of this website of combining the results of technical analysis with fundamental analysis, and providing you with share recommendations that outperform in the short, medium and long term.