Growth aspirations of many a western multinational have long been pinned on fast-moving emerging markets, driven both by local demand and the margin-boosting effect of cheap labour. But now those regional economies are slowing, particularly in the Far East and Asian sub-continent, hammering local currencies, and tapering speculation is driving the dollar, too. UK corporate balance sheets have suffered as a result, and further profit warnings look likely.
A slump in the value of the Aussie dollar and sharp falls in emerging market currencies will help wipe up to £12m off Weir's (WEIR) bottom line, the oil and mining engineer has warned. That's on top of the mining industry cuts and low gas prices that forced the company to rein in full-year earnings estimates. Only last week, speciality chemicals giant Croda (CRDA) confessed the weakening yen and Indian rupee would prevent any improvement in fourth-quarter profit. Standard Chartered (STAN), Compass Group (CPG) and Unilever (ULVR) have lost millions through unhedged currency exposure, too.
And there may be more to come. Australian central bank governor Glenn Stevens admits the Aussie dollar remains "uncomfortably high" and must fall again to "achieve balanced growth in the economy". A further depreciation would stimulate exports, but having fallen below 90 US cents for the first time in three years last month, it is back near 95¢ again - in 2008 it was close to 60¢. Elsewhere, a gamble on loose monetary policy and the birth of 'Abenomics' collapsed the yen, a rapidly slowing Indian economy promises more pain for the rupee and growth concerns continue to pressure Indonesia's rupiah.
But Jon Lienard, analyst at N+1 Singer, warns against overplaying the currency card, preferring instead to focus on underlying trading. Scott Cagehin at Numis Securities does, too, and points out that for most the impact is mainly translational, affecting only the reported numbers. But even he admits that others yet to report this quarter are probably in the same boat as Weir. Much, of course, depends on what's been assumed in earnings guidance. "Some companies will have been less prudent than others," says Mr Lienard. "It will have a bigger impact on guidance for next year if rates stay where they are."
