How to take advantage of the weak pound

Pound hits lowest level since October 2016 amid concerns over implications of 'hard Brexit'. But it's not bad news for canny investors.

The pound has dipped to its lowest level in more than three months, amid concerns that prime minister Theresa May is leaning towards a 'hard Brexit'.

In a speech on Tuesday (17 January), May will declare her hand on Brexit, spelling out the terms she expects to secure as part of the forthcoming negotiations with European member states.

May is thought to be in favour of a so-called hard Brexit, which would involve leaving the single market and having tight controls on immigration.

Ahead of the speech, currency markets have fallen, dipping below $1.20 in the early hours of this morning when Asian markets opened.

At the time of writing (11am) the pound had dipped 1.1 per cent versus the dollar to trade at $1.2057. Against the euro the pound had slipped 0.53 per cent, to €1.0586. The FTSE 100, however, was untroubled, up marginally by 0.08 per cent to trade at 7345.

MINERS BENEFIT

For more seasoned investors, the pound's fall and the Footsie's rise does not come as a surprise.

That's because a cheaper pound is good news for internationally facing domestic companies, whose exports are made considerably more competitive by weaker sterling, thus boosting earnings. Given the international make-up of the FTSE 100, various sectors benefit.

According to broker AJ Bell, miners in particular, including Fresnillo, BHP Billiton and Anglo American, have benefited, with each posting 10 per cent plus gains over the past month.

This is due to the ongoing weakness of the pound which increases the value of their foreign profits and assets.

Certain domestically focused names have also been given a boost. It is worth remembering that the FTSE 250 index generates more than half of its earnings from outside of the UK.

AJ Bell picks out Whitbread, up 12 per cent, as an example, as sterling's slide attracts more tourists to its hotels in the UK.

Other shares that have benefited are those that fit the 'quality defensive' description, such as pharmaceutical stocks GlaxoSmithKline and AstraZeneca.

While it is anyone's guess where the currency markets will be in a year's time, one thing is for sure: the internationally focused FTSE 100 index is unlikely to be knocked off course by further weakness.

Indeed, since last June's Brexit vote sterling's depreciation has been one of the main drivers behind the market's rise. In addition, sterling investors who have put their money into overseas funds have seen their returns amplified.

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