3 Reasons Investors Should Look to Ireland to Profit in 2016

Lower Taxes and Greater Spending Could Bolster Ireland's Economy in 2016

Getty Images / gareth wray.

Ireland’s economy has bounced back in a big way after the country experienced one of the worst housing crises in the world. In 2010, housing prices fell by more than half and sparked a banking crisis that left the economy in shambles. The country has since paid back its bailout funding with new bond issuances and reached an annualized gross domestic product (GDP) growth rate of about 7.8% in 2015.

In this article, we’ll take a look at three reasons that international investors may want to revisit the country as a potential opportunity in 2016 and 2017.

1. The Euro is Moving Lower

The U.S. Federal Reserve’s decision to increase interest rates by 25 basis points in December 2015 and the European Central Bank’s decision to expand its easy money policies both helped the euro move to fresh lows against the dollar that seem poised to continue in 2016 and 2017.

The government predicted that its aggregate GDP would expand by 6% in 2015, as the economy’s natural bounce-back was accelerated by the weak euro stimulating exports. In addition, the weak euro has enabled the country to recently sell a €1 billion worth of 15-year debt at a near record low interest rate of 1.8%. These funds have been used to support public spending that promises to further boosted the economy over time.

2. Ireland has Favorable Policies

Ireland’s coalition government promised a second straight year of modest tax cuts in 2016, with a €750 million tax-cut package introduced by Minister of Finance Michael Noonan.

These tax cuts were complemented with a similar sized public spending package.

These moves should help keep the country’s recovery moving in the right direction by powering employment and consumer spending. With unemployment remaining at around 9.5%, there’s still a lot of slack in the labor market that could be productively employed to further advance GDP growth in the Eurozone’s leading economy.

Critics argue, however, that the government still suffers from a relatively high debt burden that it should first address.

3. Employment is Improving

Ireland has seen its unemployment rate steadily decline from nearly 16% to about 9.5% during 2015, as the economy continues to pick up steam. Of course, these trends should continue to support consumer spending and reduce household debt.

The country should continue to see gain in employment as multinationals increase their investments within its borders. According to one report, U.S. multinationals alone will create 14,000 jobs in Ireland over the next two years as the labor market has slack and the country’s tax policies are among Europe’s most favorable. Many Irish emigrants are also returning home to take advantage of the country’s economic recovery in recent years.

How to Invest in Ireland

There are many different ways for U.S. investors to build exposure to Ireland’s economy through exchange-traded funds (ETFs). With over $101 million in assets, as of November 2016, the iShares MSCI Ireland Capped ETF (NYSE ARCA: EIRL) is the most popular fund in the space. The fund tracks a broad-based index composed of Irish companies with a 0.48% expense ratio and a 1.53% trailing 12-month yield, as of November 30, 2015.

In addition to this ETF, investors may also want to consider the New Ireland Fund Inc. (NYSE: IRL), which is a $75 million closed-end fund focused on Irish equities. The fund invests at least 80% of its assets in Irish debt and equity securities with Klein Benson Investors International Ltd. Serving as the investment adviser for the fund. For income investors, the attractive 1.62% dividend yield may be a compelling benefit versus the ETF option.

Key Points

  • Ireland’s economy has been rapidly improving over the past several years, following one of the worst housing crises in the world in 2010.
  • There are many catalysts that investors may want to consider that could drive Irish equities higher in 2016 and beyond.
  • U.S. investors can build exposure to these securities through both ETF and closed-end fund options that trade on popular exchanges.