Investors dumped Irish banks, housebuilders and property stocks as the prospect of Sinn Féin forming the next government grew through Monday.
Sinn Féin’s capture of almost a quarter of the General Election 2020 vote raised the possibility that it will be in a position to freeze rents and embark on a public housebuilding programme if it joins a coalition.
Shares in Dublin-listed builders Glenveagh Properties and Cairn Homes bore the brunt as investors offloaded companies that did business solely or mainly in the Republic.
Glenveagh tumbled 10.86 per cent to close at 78 cent, wiping more than €70 million off its value. Traders said the number of shares sold was not high.
“There’s a feeling that Sinn Féin policies would not be progressive for this type of company,” one dealer explained.
Growing demand recently prompted Glenveagh to boost building targets for coming years. The company committed to finishing 2,350 homes in 2022, 3,050 the following year and 3,000 in 2024.
Sinn Féin leader Mary Lou McDonald pledged at the campaign’s outset that it would embark on the “largest” public housing programme in the State’s history if the party were elected to government.
Cairn Homes shed 8.62 per cent to €1.124, cutting its worth by about €74 million.
Some speculated that Sinn Féin’s proposed rent freezes, could hit the company’s ability to sell apartment blocks to landlords, thus hitting its ability to fund them in the first place.
The same fears dogged landlord Irish Residential Properties Real Estate Investment Trust’s shares. It slid 8.65 per cent to €1.50.
"Investors are concerned," one market observer said after trade closed on Monday. He added that it could take several days for the Irish Stock Exchange to settle and for investors to get a sense of who could form the next government.
The Republic’s partially State-owned banks took a hammering. Investors fear that Sinn Féin could try to force them to cut lending rates.
AIB, which is 71 per cent-owned by the public, slid 5.44 per cent to €2.364. Bank of Ireland, where the State shareholding is 14 per cent, lost 8.31 per cent to close at €3.93.
Permanent TSB, three-quarters-owned by the State, retreated 11.13 per cent to 91 cent.
Darren McKinley, analyst with stockbrokers Cantor Fitzgerald in Dublin, argued that Sinn Féin could be in a position to demand that the banks cut interest rates on home loans.
He explained that in the past high numbers of “non-performing loans”, mortgages where the borrowers were in arrears and not making repayments, had forced banks to increase lending charges. “But I don’t think that argument is as strong now,” he said.
Mr McKinley noted that along with Brexit, the political uncertainty was another reason for investors to be “underweight” on Irish stocks at the moment.
However, he agreed that the markets over-reacted. “The truth is that if you look at Sinn Féin in power in the North, they are not extreme left, they are a more moderate left-wing party,” Mr McKinley said.