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It’s easy for me to feel somewhat pessimistic about the state of the economy and the performance of my portfolio right now. However, there is one driving macro-economic factor that suggests some stocks are listed above. FTSE 100 It can be useful.
It all comes down to exchange rates
The British pound has struggled and is currently at its lowest level since 1985. The real story here, however, is the increasing strength of the US dollar. This leads to capital flows into the dollar by leading the US Federal Reserve to raise interest rates. A strong dollar is bad for companies that have to pay for their raw materials in dollars, and therefore have to increase their costs and pass them on to the customer.
However, the FTSE 100 is full of companies that export goods and services, and the weak pound makes their goods more attractive. One such company would be BAE Systems. Not only does it benefit from a weak pound, but it also works in an environment where defense spending is expected to remain strong given the current geopolitics.
Energy and goods can be more useful
Another thing to note is that those companies earn a significant proportion of their revenues overseas, and those profits are repatriated back to the UK and converted into pounds. Oil and gas companies are obvious examples, as are mineral and natural resource stocks. The benefits of convenient currency exchange can be significant.
Consider the performance Shell And Bp. Both have seen their stock prices compare favorably with the broader indices. At first glance, this may seem strange compared to the oil prices we’ve seen since June. But fuel prices are in US dollars. Convert it to pounds and the share price looks fair.
The same issue can be for large mining stocks, many of which are in the FTSE 100. Glencore It recently announced record profits and special dividends to investors on the back of strategic product investments. Continued higher energy prices should contribute to the already strong financial position.
Similar observations can be made in the precious metals sector. Silver and gold prices have had a rough time lately. Precious metal mining share price FrenilloOn the other hand, he could not participate in the reduction.
A note of caution
The energy sector has received a lot of media attention recently, and there is ongoing talk of a windfall tax on the most profitable companies. While the current political climate makes further tax increases on such companies unlikely, it is something I would like to keep an eye on.
Investing is rarely two-sided.
What I’ve learned as an investor is that, in reality, it’s very easy to get caught up in bad news when negative headlines – in some cases – cover an investment opportunity.