Paul Laverty, head of Business Development Ireland with online broker DEGIRO, discusses the major market stories for May.
Last month’s big market story was Snapchat. This month is a snap election. Theresa May has triggered the process for an early general election set for June 8th despite earlier claims from the PM that she would do no such thing.
May’s Conservative party has only a slim lead in Parliament and many have seen this move as a power grab in a time when the Labour party, led by the perpetually popularity plagued Jeremy Corbyn, is at a weak point. Should May succeed, it is likely to pave the way for her to lay out any Brexit strategy she sees fit.
However, this decision only adds to the market uncertainly. Following last summer’s referendum, markets have reacted well. While the pound has been consistently down, cheaper currency for foreign investors has led foreign investment to flood into the London Stock Exchange. The announcement of the election sent the pound up at the expense of markets.
VIVE L’EU
Stocks worldwide soared on the results of the French first round election. With far-left challenger Mélenchon no longer in the running and centrist candidate Macron leading over the anti-EU Le Pen, markets welcomed the news that the eurozone’s second largest economy will not likely be led by an anti-EU candidate.
The French CAC index hit a nine-year high with the German DAX hit an all-time record trading high. Worldwide, Japan’s Nikkei 225 ended the day 1.4%. The Dow climbed 200 points and the NASDAQ hit a record high, passing the 6000 mark for the first time the following day. Perhaps the biggest sigh of relief came from the VIX volatility index, which fell 22%. The last time the VIX dropped this much in a day was following Donald Trump’s win in the US last November.
EXPANSIVE CONSOLIDATION
Bank of Ireland, the single-most traded stock by DEGIRO’s Irish clients, is set to consolidate the number of outstanding shares by a whopping 97%.
The bank has laid out plans for a corporate reorganisation which will convert current holdings into a holding company this summer in a move that is largely technical and aimed to reduce the total number of outstanding shares. Currently Bank of Ireland has over 32 billion shares outstanding and trade just under €0.25 per share. The current number of outstanding shares reflects the capital injections by the state to help alleviate during the 2008 financial crisis. The Irish state still owns roughly 13% of all bank holdings.
Shareholders will receive one new share of the newly established Bank of Ireland Group plc for each 30 shares held. This new move would bring the share price closer to €7.00-€7.50 per share and help to better compare Bank of Ireland stock price performance to its contemporaries, the nearest being Allied Irish Bank which trades around €5 per share.
Paul Laverty
TESLA TAKEOVER
Electric car company Tesla’s stocks have been surging lately. Tesla listed in the NASDAQ in 2010 below $20 per share. Currently it is trading over $300. Although the firm’s structure, goals, or fundamentals have not changed much lately, for a brief time the firm’s total value of outstanding shares exceeded that of longtime frontrunner General Motors.
Despite Turkey’s move away from the Western values Europe is based on, Erdogan has a good track record with businesses
While Tesla stock did dip shortly after it took over GM for largest auto company by market capitalisation, it is currently holding steady as the number two-car manufacturer in the US by market cap. Tesla’s total market cap is at $48bn, behind GM’s $51bn but in front of Ford’s $44bn.
Whether the firm’s spectacular growth is sustainable or not is debatable. Many market analysts believe that the stock is currently overrated and due in part to short sellers finally caving in and closing their positions at a loss. Either way, Telsa has investors watching and awaiting the release of the mass market Model 3 electric car set for 2018.
TALKING TURKEY
As Turkish President Erdogan celebrates gaining sweeping new powers after Turkey’s referendum, investors seem to be celebrating with him. Turkish stocks, bonds, and the lira all rallied on the news.
While opponents say the move puts Turkey on the road to autocracy (and away from the EU), it has delivered some stability in a country that had five elections, multiple large-scale terror attacks, and an attempted military coup in the past three years. With the vote as close as it was, many analysts are predicting that such a slim margin will also incentivise him to keep the country’s economy as a priority.
Despite Turkey’s move away from the Western values Europe is based on, Erdogan has a good track record with businesses. Since he took office as the Prime Minister of Turkey in 2003 (a position he has now eliminated in favour of a Presidency), the Borsa Istanbul 100 index is up 760%. This growth rate however hides a less impressive statistic; a more than 50% devaluation of the lira during the same time span.
* See degiro.ie/etf
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