The falling pound: what the experts think
Pound fest
“Boom!” The FTSE 100 “smashed through to a new all-time intraday high” on Tuesday, breaking the previous record set in April 2015, said The Guardian. The weak pound, as analyst Chris Beauchamp of IG observed, is “working its magic” on share prices again: the index has consistently pushed higher as the pound has weakened since June. Doubtless there will be “legions armed with charts” who’ll “paint the index in a less flattering light” when rebased against other currencies (in dollar terms, it is still down 6% this year). Most investors, though, “will simply be pleased to see their portfolios rise – and will worry about the currency later”.
Continued windfall
“This is very much a story of sterling weakness boosting foreign earnings, which account for around two-thirds to threequarters of FTSE 100 company revenues,” said Neil Wilson of ETX Capital. Yet investors should continue reaping the windfall, said Sam Brodbeck in The Daily Telegraph. Ordinary dividends paid by FTSE 350 firms are predicted by Markit to rise by 16% year-on-year in the final quarter of 2016, with oil and gas, technology and telecoms stocks “leading the boom”. Clothes retailers and food producers, both heavily reliant on imports, are “expected to suffer most”. The weak pound makes sector selection key, “because exchange rates tend to affect all companies with similar business models”, said Russ Mould of the fund shop AJ Bell. “A bad stock in a good sector will tend to outperform a good stock in a bad sector.”
What could swing things?
An alternative strategy “is to position yourself for the pound’s rise”, said Roger Blitz in the FT. This is “based on believing that a) sterling has hit the bottom; b) it will rebound on the back of the economy staying resilient; and c) Brexit will turn out to be soft and even cuddly”. So it seems like a long shot. But currencies are “two-way”, and influences on the US side could well come into play. “The US election, the state of the economy and the prospect of rate rises across the Atlantic could all push the dollar higher against the pound.” But for now, “UK politics is at the wheel” – and the driving is “erratic”.