Trashed sterling (not all bad news though)
The damage to sterling occurred immediately after the referendum result was known with a 10 per cent fall against the US dollar in the week following the result*. It has fallen even further now – down 16 per cent from 23 June close (and down 10 per cent versus the euro)**.
This is not all bad news. As global equity investors based in the UK, we have enjoyed a good uplift in our overseas investments – many of which are of course UK-quoted companies.
The FTSE World index since 23 June 2016 has returned about 14 per cent** in local currency terms – but 32 per cent** in sterling terms. This is a significant return for investors.
The brief spat between Tesco and Unilever over the price of Marmite last autumn is an augur of what is to come.
The full effect of weaker sterling is yet to be felt, as costs begin to rise through the supply chain and suppliers seek to protect their margins and share the pain with consumers.
The consumer prices index (CPI) rose to 1.8 per cent in January, compared with 0.5 per cent*** in June last year. There are further increases to come, no doubt.
If sterling stabilises at current levels, the higher inflation rate will fall away after a year and the Bank of England may ignore the brief blip in prices. If not, interest rates will have to move higher.
The politics of Europe has been shaky for years, but Brexit adds a new dimension to Europe’s uncertain economic outlook, in particular for the UK.
Any benefit to the UK’s export competitiveness from a weaker sterling could be completely negated if Europe plays hardball over market access post Brexit.
That’s why I believe that a global portfolio offers a distinct advantage over single country or regional portfolios. Political and economic surprises occur and there are always winners and losers; managing a global portfolio means that I am free to invest in companies that I believe will succeed in the prevailing conditions, irrespective of their geography – and this flexibility offers some potential insulation for shareholders.
• Tom Walker is portfolio manager of Martin Currie Global Portfolio Trust
To hear more from Tom Walker, book your place at the Scotsman Conferences event on 28 March, Investment in a post-Brexit world.
Sources: Martin Currie, *from 23 to 30 June 2016, **from 23 June 2016 to 28 February 2017. ***Office for National Statistics
Information correct at time of publication. This information is issued and approved by Martin Currie Investment Management Limited. The opinions contained in this article are those of the named manager. They may not necessarily represent the views of other Martin Currie managers, strategies or funds. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.