Questor has made as many duff calls as anyone who seeks to prognosticate on the financial markets, but we did get one thing right when we predicted several months ago that the pound was going to weaken against the dollar.
When we made that prediction in late May a pound bought $1.26. After the frightening slide of the past few days a pound will buy you just $1.07.
It’s not this column’s role to get involved in political controversy but we will point out that of the pound’s 19 cent, or 15pc, fall since May five cents, or 4pc, have been lost since the Chancellor delivered his mini-Budget last Friday – and that sterling is far from the only currency to have fallen severely against the all-conquering dollar (the euro, for example, is 1.8pc weaker since Friday morning and 10pc weaker since late May).
So the pound has fallen by more than the euro but not in this column’s view calamitously so.
But back to business: how much has our advice in May to readers to buy American stocks actually benefited them, and what is the best way to handle the new circumstances in which the financial markets find themselves?
The first US stock we tipped in our Questor in America series was Mastercard. Its shares have fallen by 20pc in dollars but, thanks to the fall in the pound, by only 6pc for British investors.
The respective figures for our other tips in the series are Alphabet (17pc fall, 2.6pc fall), Nike (14pc fall, 2.4pc fall), Newmont (38pc fall, 29pc fall), Procter & Gamble (7pc fall, 7pc gain), Cadence Design Systems (3pc gain, 15pc gain)*, Zoetis (16pc loss, 5pc loss), IBM (5pc loss, 7pc gain), Philip Morris (11pc loss, no change), Tyler Technologies (9pc loss, no change), Golar LNG (14pc loss, 7pc loss).
In Questor’s view it no longer makes sense for readers to put money into American shares: to buy those shares, they (or their broker) will need to buy dollars, and their pounds simply won’t buy many dollars right now.
Those who followed our earlier American tips (and we have been tipping US shares now and then for years, before our more recent weekly Wall Street recommendations) should certainly sit tight: they now have some currency diversification in their portfolios, which we see as a good, even essential, thing in the current turmoil.
Bargain hunters might do better to look to home shores. One intriguing aspect of the market moves in the days following the mini-Budget is that the relationship between the share prices of London-listed multinational companies and the exchange rate broke down.
In normal times a weak pound boosts the FTSE 100, all other things being equal, because so many blue-chip companies make much of their money abroad. Those overseas earnings become more valuable if sterling falls. But last Friday both sterling and the FTSE 100 fell heavily and the blue chip index stands a fraction below 7,000 – close to the level it first reached in 1999.
Questor notices an echo here with what happened after the Brexit vote: then the pound fell drastically, which should have supported the FTSE 100, but it too fell in shock – initially at least. Then investors remembered the link between the exchange rate and the profitability of blue chip companies and the index recovered. If readers are quick they may benefit from the same phenomenon now.
Among the multinational, dollar-earning companies tipped here recently are Shell, which has fallen by 5pc since we recommended it three weeks ago despite the pound’s weakness, Anglo American (7pc lower in five weeks) and Smith & Nephew (7pc down since early August).
Stocks such as these seem a better bet in the current circumstances than using our cheap pounds to buy expensive dollars to invest on Wall Street, especially as markets have a tendency to overreact and may decide to push the pound back up. So we will suspend our Questor in America format for the moment and see how things develop over the coming weeks and months.
The broader lessons remain: investors would do well to keep an eye on the currency markets and diversify their holdings into different currencies to improve the long-term resilience of their portfolios.
*We originally included Somero Enterprises in this list. While an American company, its shares are listed in London and denominated in pounds, so they do not belong in this analysis. We apologise for the error
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