Merrion urges clients to sell down Irish equities before slew of results

Investors in US and European equity funds have been pulling money after Trump rally

The Iseq index has surged almost 25 per cent from its lows last June, when UK voters decided to quit the EU.

The Iseq index has surged almost 25 per cent from its lows last June, when UK voters decided to quit the EU.

 

JOE BRENNAN

Merrion Capital has advised clients to cut their Irish and global share investments ahead of a slew of corporate earnings in the coming months over concerns about Brexit, and the risk of Ireland being hit by tax moves in Europe and the US.

The Iseq index has surged almost 25 per cent from its lows last June, when UK voters decided to quit the EU. The benchmark index is now more than 7 per cent above where it stood a year ago and is within 300 points of its all-time high, of 6,886.56 points, reached at the end of 2015.

Rally

“The Iseq has rallied back above pre-Brexit referendum levels, despite [UK prime minister] Theresa May targeting a ‘hard Brexit’ in her recent public speech, our closest competitor and largest export destination in the UK devaluing their currency by 20 per cent over the last six months and Donald Trump winning the US election pledging to cut [its] corporation tax rate to 15 per cent,” said Darren McKinley, an analyst with Merrion, in a note on Friday.

The US currently has a 35 per cent corporate rate. Some economists say US multinationals may return operations back to their home country if Mr Trump succeeds in pushing his tax-cut plans through Congress.

“Further to this, depending on the UK’s trade deal with the EU, Theresa May will consider lowering their corporation tax rate to retain key industries,” Mr McKinley said.

Tax

Separately, German chancellor Angela Merkel continues to openly discuss EU tax harmonisation “which would effectively see the Irish corporation tax rate increase to a level playing field with the rest of Europe,” he said.

As an indication of a growing view that a global equities rally since Mr Trump’s election in November may have gone too far, Massachusetts-based funds data provider EPFR Global estimates that investors pulled $2.5 billion out of US equity funds in the week to January 18th, ahead of the president-elect’s inauguration.

Bank of America Merrill Lynch said in a strategy note on Friday the outflows suggest that profit taking has set in following the post-election surge, with investors having pulled money out of US stock funds in four of the past five weeks.

European equity fund outflows rose to a six-week high of $700 million in the week to January 18th, according to the figures.