(Bloomberg) -- The future of the Irish border has been a focal point of Brexit ever since the U.K. voted to leave the European Union almost 28 months ago. What’s garnered less attention is the impact the event will have on stocks traded in Dublin.
But a new position taken by analysts at JPMorgan Chase & Co (NYSE:JPM). is speculating Ireland will outshine Britain after the divorce.
JPMorgan moved to “overweight” on small and mid caps in Ireland versus U.K., betting the equities will outperform similarly-sized British companies, according to a report published Wednesday. While many commentators suggest suggest Brexit will have a negative impact on the Irish economy overall, the bank’s strategy will pay as long as the nation’s stocks fare relatively better.
The stocks listed on Dublin’s main market had a combined value of about 104 billion euros ($120 billion) as of Oct. 10, according to daily summary from Euronext. That compares with about 2.5 trillion pounds ($3.3 trillion) for companies on London’s FTSE All-Share Index, data compiled by Bloomberg show.
“The Irish market is both cheap and growing in value,” Eduardo Lecubarri, the bank’s head of SMid strategy, said in a phone interview. “But it’s also small.”
Yet, the Irish market’s size may work in its favor as some investors are attracted to the greater volatility of a smaller exchange, according to JPMorgan. “It takes very little to make the stocks move,” Lecubarri added.
It hasn’t been plain sailing so far. The 45-member Irish Stock Exchange Overall Index has fallen more than 5 percent since the June 2016 referendum, while the STOXX 600 Europe benchmark has gained about 4 percent and the FTSE All-Share gauge around 11 percent.
But after Brexit, Ireland’s strength as an EU member and the bloc’s relationships with emerging markets will outweigh any loss of trading with the U.K., he said. “In any economy, it’s more about opening up to the world, and opening up to the east, than it is about strengthening ties with developed countries,” Lecubarri said.
Meanwhile, Lecubarri said the level of progress being made on a deal by U.K. and EU negotiators will have little impact on his Ireland call.
“The reality is better growth, and cheaper and better balance sheets, with a kicker,” he said. “Whatever happens, it’s going to be better on the margin for Ireland than it is the U.K.”
