If ever you wanted some proof of the global nature of the FTSE 100, then a couple of sharp reminders have been recently administered. That great, reliable Anglo-Dutch stock and stalwart of the FTSE, Unilever, was given a bashing last week; not because its products have gone wrong, after all Dove Soap, Flora and Knorr Stock cubes are still household staples. No, this time it is the effect of the emerging markets where their global and regional brands have been affected by the recent fall off in many emerging and developing national currencies.
A quick glance at a currency graph will show remarkably similar patterns for the Indonesian Rupiah, the Indian Rupee, the Brazilian Real and the Turkish Lira against any of the major currencies.
Not only has this devaluation affected the value of sales in Sterling, but it is also a pre-cursor to the fact that demand in these nations will slow down. This will have a direct impact on especially many of the European exporters who have benefitted from the EM boom of the past few years. Retail brands are likely to be especially exposed and hence the nasty bump in the Unilever price.
This may in the short term provide some nervousness in the sector‟s share prices, but equally may also throw up some opportunities to buy good long term companies at better valuations.
Source; Seven Investment Management (7IM)