Irish shares hit 12-year high on ‘Boris bounce’

The Iseq index of Irish shares hit its highest level since 2007 during trading on Friday as UK prime minister Boris Johnson’s landslide electoral victory buoyed hopes that his Brexit withdrawal agreement will pass through its parliament next month.

The Republic's two main banks – AIB and Bank of Ireland – saw their combined market value soar by as much as €1.3 billion at one stage as their share prices jumped by up to 10.6 per cent and 8.7 per cent respectively.

However, both the banks and the wider market closed off their highs as US markets trended lower in early trading. US investors remained confused about signs of progress on a US-China trade deal in spite of comments from both sides that they had reached an initial agreement.

The Iseq index, which surged as much as 3.6 per cent to a 12-year high of 7,329.18, ended the session 1.6 per cent ahead. Bank of Ireland ended the session up 1.5 per cent, while AIB closed 2.2 per cent higher.

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Irish banks have been among the most Brexit-sensitive stocks in the Irish market as the Republic’s economy would be set to be the most affected among the remaining EU members from the UK exiting the union in a chaotic manner.

“SMEs that have been reluctant to invest amid concerns over Brexit, and people who have been holding off on buying homes and other property may look more favourably at borrowing now that the risk of a hung parliament and long period of uncertainty has been lifted,” said Diarmaid Sheridan, an analyst with Davy.

The UK-focused FTSE mid-cap index jumped 3.4 per cent after touching a record high earlier in the session, while the more export-oriented FTSE 100 advanced 1.1 per cent. The pan-European STOXX 600 closed up 1.1 per cent.

Sterling jumped by as much as 2.6 per cent against the dollar and 2 per cent compared to the euro within hours of an exit poll on Thursday evening pointing to the resounding Conservative victory.

“The pound has rallied over 11 per cent against the euro since August, and could gain further ground in the coming weeks,” said Lee Evans, head of foreign exchange trading at Bank of Ireland’s markets and treasury division.

“However, currency markets will quickly turn their focus to the negotiation of a new EU-UK free trade agreement, which could limit sterling strength in the new year.”

Turning point

Boris Johnson’s victory may prove to be a major turning point for European equities as the election gives the prime minister the mandate he needs to pull the UK out of the EU next month, potentially removing a significant risk from the region’s assets.

“From a political and economic point of view, the conclusive election result should also be welcomed, but Brexit issues are far from resolved,” said Dermot O’Leary, an economist with Goodbody Stockbrokers.

“While the UK will leave the EU at the end of January, the chances of getting an agreement on the future relationship without an extension to the transition phase beyond the end of 2020 are slim to none in our view.”

Mr O’Leary said that the UK would have to seek an extension to the transition phase to avoid reverting to trading on World Trade Organisation terms, which would involve tariffs and quotas on certain goods.