POUND for POUND
Job Curtis , fund manager of the City of London Investment Trust , says the fall in sterling has increased confidence in UK dividends
T HE MAIN INDEX
( a benchmark representing the value of a market ’ s shares or bonds ) of UK shares hit an all-time high at the start of 2017 , which raised an important question for private investors who might be wondering where to use their ISA allowance of £ 15,240 . On the one hand , you would not want to forego the significant tax benefits of the annual ISA before the deadline on 5 April 2017 . On the other hand , is it prudent to put money in the stock market after the recent surge in share prices ?
The rise in UK share prices since the referendum on Brexit is logical . It reflects the fall in the value of sterling or the British pound against overseas currencies . On 23 June 2016 , the exchange rate between the pound and the US dollar was £ 1 = $ 1.49 . There has since been an appreciation of around 18 per cent in the US dollar to leave the exchange rate at £ 1 = $ 1.22 . Against the euro , the fall in the pound has been 12 per cent .
We believe the fall in the pound is beneficial for UK shares because around 70 per cent of the sales of quoted UK companies come from overseas . The value of these overseas sales ( and profits ) is boosted by the devaluation when translated back into British pounds . In addition , those British companies that export will have their competitiveness improved , although this is partly offset by other companies , such as retailers , which will have to pass on , at some stage , the higher cost of imported goods to their customers .
8 trustnetdirect . com