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OPINION

Currency clues

Currency clues
By
August 1, 2019
Currency clues

A weakening pound is a story always guaranteed to hit the main news, even more so at a time when holidaymakers are packed and ready to jet off on their summer holidays. As one report noted, a pound will buy you 85 euro cents at some airport FX bureaux – although who’s buying at that price I don’t know; even the miserly NatWest offers €1.04, and there are plenty of bureaux in London and online still offering closer to €1.08. In the world of business news, the equally hackneyed story is how much a weakening pound helps the FTSE 100. Indeed, as sterling has plunged, so the blue-chip index has moved close to record highs as the market prices up the non-sterling revenues of the multinational businesses it is largely home to. For many UK investors, the FTSE 100 remains the preferred route for gaining international exposure. 

That’s not necessarily a reflection that it offers the best quality international exposure, but nervousness about buying overseas equities. As Phil Oakley and I discussed on last week’s podcast, that’s a fear that investors probably need to overcome given the number of outstanding companies overseas far exceeds those in the UK, particularly in the US. Once again, though, poor exchange rates could be putting people off, both the underlying rate that elevates the cost of buying now and the even worse ones often offered by brokers that exacerbates it. That’s not to mention added tax complications as we discuss in our Money section on page 29. 

Another reason to avoid complacency over the FTSE 100 is the still significant weighting towards oil and gas, with BP and Shell alone accounting for around a tenth of the value of the index. The former has delivered decent results this week, but that exposure nevertheless carries clear risk from the growing decarbonisation momentum. Earlier this month, LSE-owned index provider FTSE Russell scrapped ‘oil & gas production and exploration’ as a sector classification in favour of the new ‘non-renewable energy’ sector. While some suggest an element of virtue-signalling here, I’d suggest it’s a fair reflection of the direction of travel for what’s powering the global economy. Even those that have made the most money from the hydrocarbon age are hedging their exposure, among them two of the world’s most oil-rich countries: Norway – whose sovereign wealth fund has been divesting oil holdings – and Saudi Arabia, which has ploughed billions into technology via its investment in Japan’s Softbank. As we suggest in this week’s cover feature starting on page 22, readers would do well to pay attention to these giant investors.