Pound fights back, DFS makes market share gains and Hang Seng up as Asian stocks soar

“Yesterday’s drama saw the Bank of England warning about a painful recession and a slump in the pound followed, although the currency (versus the US dollar) briefly made a full recovery to pre-interest rate decision meeting levels in the early hours of Friday,” says Russ Mould, Investment Director at AJ Bell.

“Markets habitually experience knee-jerk reactions and this week has been no different. Despite investors having already anticipated a large interest rate rise and a bleak economic outlook, they still panicked when the figures were presented to them along with gloomy commentary from the central bank.

“Pushing up rates is vital to bring down inflation but having a weaker currency will serve to drive inflation even higher as the cost of importing goods goes up. The Bank of England certainly has its work cut out.

“Despite the pound’s attempts at fighting back from Thursday’s slump, investors looking at London-listed stocks clearly seem to prefer companies which earn in overseas currencies, judging by the performance on the FTSE 100 at the end of the week.

“Miners all earn in dollars, and they topped the leader board, helping to drive the blue-chip index up 0.6% to 7,233. Prudential and Burberry were also key risers, helped by their foreign exposure and hitching a ride on the rally in Asia-focused stocks.

The Hang Seng index recorded its biggest weekly gain in 11 years, rising 8.7% to 16,161. A good chunk of those gains came on Friday as stocks jumped in anticipation that the Chinese government would relax its zero-Covid policy from March next year.

“Prior to this week’s rally, Asian stocks had struggled this year amid fears about a sharp slowdown in economic growth partially caused by stringent Covid lockdown rules in China. Even after the rebound this week, Hong Kong’s index remains 30.6% lower year-to-date.

“HSBC’s London-listed shares have been remarkably firm this year, but it is coming under increased pressure from major shareholder Ping An which has reportedly called on the bank to be more aggressive with cost cuts. In a classic activist investor move, Ping An wants HSBC to demerge its Asian operations.”

DFS

“In the current climate shareholders in furniture seller DFS will be sitting fairly comfortably after its latest update.

“The more positive trends seen since September speak to the market share gains the company is eking out and suggest that, despite all the pressure on households, some are still prioritising the need for a new sofa.

“The robust update unveiled by DFS is particularly impressive when you consider the fate of Made.com.

“With the latest forecasts of a prolonged recession for the UK it seems likely there will be a further deterioration in the outlook but the relatively strong balance sheet at DFS should enable it to weather the storm to come and emerge with an already strong market position significantly enhanced.

“It shows that getting the basics of retail can take you a long way, no matter the economic environment. DFS has done a good job of managing its cash flow, stock and, most importantly, getting customers products they want at a price they are prepared to pay.

“That doesn’t mean DFS is immune to the current turmoil but it’s a sign of both the company’s confidence and its financial strength that it is extending a buyback programme launched in March 2022.”

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