Signs of a continued recovery in Ireland may be creating some opportunities in equity markets but as peripheral Europe suffers fragile political setbacks and Europe struggles to return to growth, will the Celtic tiger roar again?
The most recent April GDP figures as part of the IMF World Economic Outlook forecasts Irish GDP at 1.1 per cent for 2013, up from 0.9 per cent in 2012. This is expected to rise to 2.2 per cent in 2014.
A number of fund managers have been closely monitoring signs of improvement in Ireland’s macroeconomic landscape, which is subsequently leading to global and competitive opportunities amongst Irish stocks.
Henderson Global Investors fund manager John Bennett manages the £1.39bn Henderson European Selected Opportunities fund, which has a 0.9 per cent exposure to Ireland.
He says: “Ireland’s prospects are looking brighter. The country’s current account has returned to surplus and Ireland has begun a gradual return to the capital markets, enabling it to move towards an exit from its EU/IMF bailout.”
Bennett has recently bought a small position in Bank of Ireland, based on Ireland’s “improving trade situation and competitiveness”, as well as businesses with “diversified markets” including beverage company C&C.
JP Morgan Asset Management European fund manager John Baker manages the £85.7m JP Morgan Europe Dynamic ex-UK fund, which currently has an 8.1 per cent exposure to Ireland.
He attributes Ireland’s strengths in exports as a main driver for its sustained growth, despite a slowing in the sector in the latter half of 2012 “in line with weak global demand.”
Baker also looks to effects filtering down from the property and employment markets that are helping to improve the overall macro picture in Ireland.
He points to mortgage transactions in January and February combined, which are up 5 per cent from the previous year, along with “stabilisation” in residential property prices.
According to Baker, a 23 per cent reduction in unit labour costs relative to the rest of the euro over the 2009 to 2012 period has also improved Ireland’s competitiveness.
Baker currently holds Smurfitt Kappa, a world leader in paper packaging and international dairy food company Glanbia.
Similar to Bennett, Baker has made a recent move to buy Bank of Ireland. Baker says the bank’s underlying fundamentals proved attractive as Q4 earnings beat analyst’s predictions.
He adds that given the bank’s recovery profile, it has a “fairly attractive entry point” with a net asset value of 0.9 per cent.
Baker goes on to argue that Ireland could be set to leave the rest of peripheral Europe behind. He says: “Undoubtedly Ireland is ahead of Portugal and Greece. Spain and Italy are slightly different because they are so large.
“It is still within that category of the troubled economies of Europe but it has the highest probability of leaving that group quite soon.”
As growth in Ireland looks set to remain above 1 per cent during 2013, according to the IMF April GDP figures, by comparison Italy’s GDP is forecast to be -1.5 per cent and Spain’s -1.6 per cent during 2013. This also compares to -0.3 per cent GDP growth for the eurozone as whole.
Investment Quorum chief executive Lee Robertson sees a slight distinction between Ireland’s recovery and the instability witnessed in the rest of the peripheral European economies.
He says: “We are actually vaguely interested in Ireland and have been for a while. They have really put their shoulder to the wheel and made great in-roads. It has managed to rejoin the investable fraternity.
“However we are not so sure about the rest of peripheral Europe yet and are choosing to sit on the sidelines, there are still just far too many uncertainties and risks.”
PSigma chief investment officer Thomas Becket says: “Ireland has undoubtedly been the poster child for European austerity measures and reforms that the core countries are pushing on the periphery.
“However, despite the fact that Ireland has returned to the bond markets, certain factors in terms of its long-term financial position still leave them in a relatively precarious position. They still have incredibly high debt to GDP at a government level, and there seems to be issues to be unwound in both the financials and the property sector.
”Ireland, as with all economies, is also at the behest of long-term global growth which at the moment is still quite questionable.”