Income seekers appear to have flocked to the UK's two oil majors in a move that is seeing investors bid up companies with a heavy exposure to the dollar.
Other than gold miners, two of the few bright spots for equity investors in the past week have been London-listed supermajors BP (BP.) and Royal Dutch Shell (RDSB). Although the oil giants' share prices both dropped shortly after the Brexit result was announced, they have since rallied to 8 per cent and 12 per cent, respectively, above the level they were at on the morning of the referendum.
It would seem investors saw the sharp decline in sterling against the dollar and correctly called that, all things being equal, companies that largely earn in dollars and whose asset bases are valued in the greenback offer a useful hedge to the pound.
Also, Brexit sparked big sell-offs in two sectors beloved of income seekers: financial services companies and property developers. Dividend stocks such as Standard Life (SL.), Legal & General (LGEN) and Aviva (AV.), and housebuilders including Taylor Wimpey (TW.), Berkeley Group (BKG) and Persimmon (PSN) all took a battering.
BP and Shell - which both offer yields of around 7 per cent and whose dividends are accounted in dollars - have therefore proved a logical place for income-seeking shareholders to park their investments. The trade makes further sense when you consider that neither supermajor is likely to be badly affected by a contraction in the UK economy, which markets are pricing in. And while downstream operations (including petrol sales and forecourt franchises) could be affected if the UK falls into a recession, most of Shell and BP's business, and income streams, are derived elsewhere.
Normally, this week might not be so strong for the two companies. These rises have come despite Brent crude tumbling to a seven-week low of $47 a barrel, thanks to a strengthening of the dollar and Brexit-linked fears about global growth. What's more, Shell shares were barely affected by the loss of a bid to operate Qatar's enormous Al-Shaheen field for 25 years, which went to Total (Fr: FP).
