Ireland and the ISEQ. Tip TV follow-up. What does the future hold?

Hello traders,

Last Friday I was on TipTV talking about European indices and in particular ISEQ, the Irish Index. (Well it had been St. Patrick’s Day and I now live in Dublin so it seemed fair.)

I thought I’d post up the charts for a look and some discussion. Lets start with the Monthly Chart:

So we have the monthly chart running from 2004 to September 2012.  You can quite clearly see how the market moved up towards its all-time highs  of 10,000 in 2007/2008 before crashing hard and falling for the next 2-3 years down to a low of 2000 in early 2009. Quite some drop, I’m sure you’ll agree. A cataclysmic event that destroyed the economy, jobs and lives. One that still has repercussions to this day 7-8 years later (and which hasn’t been truly investigated by the authorities).

Having bottomed out at 2000 in early 2009 the ISEQ basically went sideways for 3 – 3.5 years between 2009 and September 2012 (the red arrow on the Monthly chart). It bounced around between 2,500 – 3,500. Jobs and companies disappeared and many people left Ireland in search of work abroad.

So what happened in September 2012? Well……….. I moved to Ireland. As is my contrarian nature, when everyone was leaving the country, I moved there and have been here the last 2.5 years.  If  you look at the weekly chart below you can see that from Oct 2012 the ISEQ has been in an aggressive up-trend for the last 2+ years.  Naturally I’d love to say that this was purely down to my own single-handed efforts to raise the economy. (To be fair I have drunk a lot of Guinness and eaten a lot of potatoes, sometime three different types on one plate) however joking aside I may as well claim some of the glory. I see politicians in the papers and on RTE (the local TV station) talking about all the good work that they’ve supposedly done to put the Irish economy back in good shape.  A lot of it is just self-serving rubbish on their behalf.

I would say that I noticed a change in sentiment in Dec 2013 when there certainly seemed to be, if not so much a renewed positivity, then certainly an absence of the excessive pessimism that I had noted in my previous dealings in Ireland. Furthermore I noticed last July 2014 in the space of one week there was a huge up-rising of large construction cranes popping up over the Dublin sky-line as half-finished projects finally got re-started (parts of Dublin had previously looked like East London after the Blitz). Someone had clearly turned on the taps for funding.  Certainly Dublin has a spring in its step and appears a more vigorous place than 5 years ago.  If you go outside of Dublin then the story is still one of struggle and challenge. The re-emergence of the economy has been (mostly) Dublin-based, so far.

However I believe the reason for the re-emergence has had nothing to do with the politicians self-serving tall-tales of endeavour. As I said in the TV piece, despite being part of the Euro project Ireland always has always been more of an Atlantic nation. Culturally, historically and economically the country has always had more in common with the US and the UK than mainland Europe.  And as those two economies have powered back, that has spilled over and they have lifted the Irish Economy.  That has been the main reason for the rise.

If you look at the weekly chart it has powered north from 3400 to tickling 6000 just the last week or so. For the Technical Trader there was a lovely Bullish Flag pattern on the weekly chart which finished with a bullish pin bar. A nice easy trade set-up.

What has helped Ireland has been the destruction of the Euro over the last 9 – 24 months which have helped make their exports even cheaper (though have made it tougher for the irish in terms of cost of goods and holidays etc.)  Have a quick look at these two charts of EURGBP and EURUSD

From a recent high in Feb of 0.8814 the EURGBP has collapsed to a recent low of 0.70.  Great for people earning sterling and spending in Euros.

The EURUSD has dropped from a high of just under 1.40 last May to a recent low of 1.04.  With sentiment expressing a move below parity to be expected.  Both of those are strong moves off the back of Euro weakness, European QE and the relative strengths of GBP and USD.  Great for people earning sterling or dollars and spending in Euros. Like tourists for example. Or UK & US companies doing business in Ireland. Not so much for poor Irish folks wanting to go abroad on holiday!  (As a word of warning if you are thinking of buying into the Irish Index or companies then you need to be aware of these currencies risk if you have to buy in Euros. Any uplift in the index may be set-off by weakness in the Euro. You have been warned!)

So what does the future hold? Well, that would be an ecumenical matter. (Sorry, couldnt help myself.)

Last week Goldman Sachs came out with a positive report about Ireland and the Irish economy and how the bump from the US & the UK could be the start of a trend of sustained growth in the Irish economy.  In fact their outlook stated that the biggest risk to Ireland was not financial, but political. They (along with most outside observers it has to be said) expressed concern at the rise of Sinn Fein within Ireland who they likened to Syrizia in Greece. (I shall leave it to the reader to make up their own mind up about that.)

Anyway even if you’re more of an active day-trader rather than long-term investor this is a good weekly chart to watch develop.

Trade well…and slainte!

Paul