Luck of the Irish

05/04/2010 11:49 am EST


David Fuller

Global Strategist and Producer, Fullermoney

Exporters are leading the Celtic Tiger’s comeback from the brink of financial ruin, writes David Fuller of Fullermoney.

Stock market index was heavily weighted by banks and financials prior to the credit crisis, so much so that the country's only sector index is for financials. The sector fell 99% from its 2007 peak and shows every sign of now forming a lengthy base. This process could take years as long positions are unwound and shares are diluted by rights issues.

Common characteristics of any base are the possibility of large percentage moves, high volatility and an inability to sustain upward breaks. This suggests that the least risky time to purchase Irish financials, if one were so inclined, would be once they have found support following occasional medium-term setbacks.

While the Irish economy has been lumped together with some of the worst performing Mediterraneans, the Irish stock market is not currently behaving in the same manner as those of Greece, Spain, and Portugal. Because of the relative demise of the financial sector, now less than 10% of the index, companies with an export bias dominate the ISEQ. The index is currently testing the upper side of the six-month range.

[Building materials supplier] CRH (NYSE: CRH, Dublin: CRH) broke back above €30 last week and in the process completed the 18-month base. The share has posted a progression of mostly higher reaction lows since July 2008 and these would need to be taken out to question scope for further upside over the medium term.

Kerry Group (OTC: KRYAY, Dublin: KYGa.I) has been among some of the better performing processed food companies globally over the last year. It broke upwards to new all-time highs in February, consolidated above the high and remains in a consistent medium-term up trend. A sustained move back below €22 would be required to question scope for further medium-term up side.

Elsewhere in the Irish food sector, Glanbia (London: GLB, Dublin: GLB) has been forming a base since December 2008 and completed it in early April. It would need to sustain back below €3 to question scope for further upside.

The performance of the above shares suggests that while the Irish market sustained a crushing blow with the collapse of the financial sector, export-led companies, particularly those in the food sector, are leading the market higher. The falling value of the euro as well as the deflationary effects of Ireland's recession should help contain domestic costs while the recovering global market may offer the opportunity to increase margins. The Irish market appears to be relatively well positioned to play catch-up with some of the better-performing developed markets over the medium term.

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