Why dollar strength is good news for UK’s blue chip firms
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Why the dollar’s strength is good for the UK’s blue chips: Companies with big overseas revenues will make money as the dollar rises
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Investors seeking protection from the recent market chaos should turn to UK companies with high exposure to the rising US dollar, experts say.
The dollar, a traditional safe haven in times of turmoil, is up a fifth this year against a basket of major currencies, reaching an all-time high against sterling last month, dropping £1 from less than $1. 04, while one euro buys less than a dollar for the first time in 20 years.
Analysts say UK companies are well positioned to take advantage of this. Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown said: ‘Most large companies listed in London derive most of their revenues and profits from abroad.
Spending power: Last month the dollar hit an all-time high, with a pound worth less than $1.04, as one euro buys less than a dollar for the first time in 20 years
These will be worth more in sterling as a result of the pound collapse.
“So expect large stocks with big foreign gains to lead the way in terms of resilience, despite the weaker pound.”
On the FTSE 100, the largest dollar earners in terms of revenue are rental company Ashtead, educational publishing house Pearson and security company Ultra Electronics.
Pharmaceutical giants GlaxoSmithKline and AstraZeneca, consumer goods manufacturer Haleon and tobacco companies British American Tobacco and Imperial Brands also benefit from strong overseas sales.
And many companies declare their dividends in dollars. They include banks like HSBC and Standard Chartered, oil giants BP and Shell, and miners like Fresnillo, Glencore, Anglo American, Antofagasta and Rio Tinto.
Russ Mold, of broker AJ Bell, said, “A higher dollar buys more pounds and increases the value of the pound dividend.”
The dollar’s strength has supported the FTSE 100, which has held up relatively well against other major indices, although it is still down 8.3 percent this year.
But not all blue chip companies have dollar exposure.
“The retailers and supermarkets targeting the UK are going to feel the pressure,” Streeter said. ‘
B&M has already been hit by the cost of living storm, with margins under pressure.
With the pound weaker, it will likely also be further impacted by rising import costs.
“The stock has already fallen 52 percent so far.”