Dollar’s dive could derail some highflying UK stocks in 2018

“Way back in 1971 the then US Treasury Secretary John Connally famously declared ‘The dollar is our currency but it’s your problem’ and the person currently in that post, Steve Mnuchin, seems equally unconcerned by the greenback’s latest move lower,” says Russ Mould, AJ Bell Investment Director.

“However, a sustained slide in the buck could start to exercise investors in UK stocks, many of whom have been able to ride the ‘pound-down, dollar-up, FTSE-up’ trade which has persisted ever since Britain voted to leave the EU in June 2016.

“A quick look at 2017’s sector performance shows the prominent roles in the FTSE’s overall showing, as a number of industrial groupings which are notable dollar-earners or have a significant reliance on overseas earnings thrived – Beverages, Mining and Industrial Engineering are all good examples.

“A number of the same suspects have been prominent so far in 2018, too, so it will be interesting to see if a sustained advance in sterling prompts a rethink and if it begins to crimp earnings forecasts at overseas earners.

Source: Thomson Reuters Datastream, based on FTSE All-Share sectors

“The below features a screen of the FTSE 350, excluding investment trusts, and highlights those names which generate the highest percentage of revenues from the USA, according to their last published annual report. If the dollar really does take a deep dive lower, this could make it harder for these stocks in particular to perform, even if they did not all cover themselves in glory in 2017.”

Source: Bloomberg, Company accounts, Thomson Reuters Datastream

These articles are for information purposes only and are not a personal recommendation or advice.