Investor confidence in UK economy wanes as sterling on Wednesday fell to its weakest level against the dollar since 1985thanks to rising risk of recession in the UK.
However, do-it-yourselfers need not panic, experts warn. In fact, a weak pound can sometimes work in their favor.
Jason Hollands, of broker Bestinvest, said: “A weak pound flatters the valuation of a portfolio invested in global equities. This means that while the US stock market has fallen sharply this year, it hasn’t hit UK investors as hard.”
The S&P 500, America’s benchmark index, has returned 17 percent in dollars. In British pounds, however, losses to date have amounted to only 3 pc.
As the pound tumbles to a multi-decade low, The Telegraph analyzes the opportunities and pitfalls faced by investors looking to stake their money in the stock market.
Buy the FTSE 100
While sterling price movements reflect sentiment towards the UK economy, the stock market is clearly segregated.
London’s benchmark index, the FTSE 100, was largely flat today despite the pound sterling’s sudden decline. This is because the index is dominated by large multinational companies, with a diverse array of earnings across many different markets.
Mr Hollands said: “More than 70 percent of the revenues of the FTSE 100 are outside the pound sterling. When the pound falls, it increases companies’ reported earnings when converted back into sterling. This means that investors will also get a currency boost if they also receive a dividend.”
The FTSE 100 is down 3 percent in the past year, compared to a 5 percent drop in global equities.