Stocks exposed to the Irish economy are expected to do well in 2020, according to a new report from stockbroker Davy.

It says the Irish equity market rallied by more than 30 per cent last year, making it one of the best performing in Europe. However, much of the outperformance was due to internationally focused companies such as CRH (+55 per cent) , Ryanair (+35 per cent), Smurfit Kappa (+46 per cent)and Flutter Entertainment (+39 per cent), the owner of Paddy Power.

Stocks most exposed to the Irish economy – the banks, housebuilders, DalataHotel Group and ferry operator Irish Continental Group (ICG) – not only underperformed the Irish index but also their European peer groups.

The main reason for this was earnings downgrades, largely driven by political (Brexit), legislative (macro-prudential rules in the housing market) and regulatory (capital buffers in the banks) headwinds.

Davy said that while the UK’s exit from the European Union continues to cast a shadow over the entire market, many of the headwinds “have now either neutralised or turned positive”.

The broker highlighted a number of stocks it expects to perform strongly over the next 12 months, including property groups Glenveigh and Cairn Homes, Dalata, ICG, recruiter CPL, insurer FBD, Greencoat Renewables and Ires Reit.

Brexit bounce

It said some stocks can expect to benefit from a “Brexit bounce”, while others will gain from favourable regulatory tailwinds and from increased output.

“The factors that impeded the performance of stocks exposed to the fast-growing Irish economy in 2019 are now largely factored into forecasts. With valuations remaining attractive in absolute and relative terms, the prospects for these stocks in 2020 are positive as the economy continues to fire,” it said.

Davy expects the Irish economy to grow by more than 5 per cent this year, largely driven by an ongoing recovery in consumer spending and strong growth in investment.

“Ongoing foreign direct investment (FDI) and a resurgent consumer are just two of the factors likely to drive growth. Improving government finances, combined with a general election likely in the first half of the year, augur well for good growth in infrastructure spending and housing in particular,” it said.

“Greater clarity around Brexit will drive confidence in the SME and corporate sectors, where investment has been held back,” the broker added.