In mid-November I attended a Kildare Chamber of Commerce business breakfast with the recently retired Speaker of the House of Commons, John Bercow, as guest speaker. Most of our clients will be familiar with Mr Bercow, who has kept us entertained as he tried to keep control of the UK Parliament whilst Brexit was debated. As chief officer and highest authority of the House of Commons, his role has been to maintain order and invite MPs to speak!
John Bercow was Speaker of the House between 2009 and 2019 and prior to that he was a Conservative Party MP. He is the first Speaker since the Second World War to have been elected four times as well as the first Speaker since then to have served alongside four Prime Ministers. Having served in the role for 10 years, Bercow became the longest-serving Speaker since Edward FitzRoy, who served nearly 15 years from 1928 to 1943.
John presented to a packed K Club with many leading business personalities, politicians and Irish sporting and TV stars present. He presented with ease and very much off the cuff, amusing yet clearly a very intelligent man. He highlighted that one of his key objectives as Speaker of the House was to know all 650 MP’s at least by name and to ensure a sense of “order” to permit a varied and inclusive debate.
Many came to hear his informed view on Brexit and to look for hints of what was yet to come. After 20 minutes presenting, Brexit was finally mentioned, and the message was simple and clear. In his view “Brexit is the biggest foreign policy blunder that Britain has made in the post-war period”, he had no idea how the election would play out, and was confident that even if Boris gets enough support to get his Withdrawal Agreement through, that the road ahead was both long and uncertain with trade and security yet to be agreed among other things.
It was upon delivery of this Brexit commentary that I took my eyes off Mr Bercow for what was a brief period during his 45-minute long discussion. It dawned on me that while no-deal risk may be off the table, the UK is still on a path of much uncertainty and a UK recession is very likely over the coming twelve to eighteen months. Without a trade agreement, businesses will hold back on investment and employees will question job security, likely curtailing consumer spending. A weak UK economy is not good for Ireland given it is our largest export geography for merchandise, food and agri. In addition, British tourists acquire about 25% of our hotel rooms each year.
Now that the ISEQ has rallied by over 20% since August and 25% year to date, we no longer have conviction that there is much upside in the short term given the uncertain growth outlook. John Bercow’s Brexit comments support our view. Valuations of many Irish large cap companies are now only fair if 10%-15% earnings growth in 2020 is achievable and start to look expensive if earnings growth falls to low single digit or even contracts. We think now is a good time to review portfolio holdings and avoid being significantly overweight Irish equities.
Darren McKinley is Senior Equity Analyst with Cantor Fitzgerald.
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