ETF Opportunities Amid UK Currency Crisis

ETF.com2022-09-28

A currency crisis isn’t something typically associated with a large, developed country like the United Kingdom, and yet that is exactly how some economists are characterizing the massive plunge seen ...

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tinacheekyle
2022-09-28
tinacheekyle
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Bspn
2022-09-28
Bspn
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Deonc
2022-09-28
Deonc
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xiaobaii
2022-09-28
xiaobaii
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- tinacheekyle:
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Titis
2022-09-28
Titis
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Tiongwee
2022-09-28
Tiongwee
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Record-high natural gas prices across Europe have been painful for the United Kingdom. In September, Russia cut off all gas exports to the continent, sending prices of the fuel soaring. While the U.K. never imported much natural gas from Russia directly, it now must compete with the rest of Europe for the remaining limited supplies.Price CapsFortunately, the jaw-dropping inflation forecasts from Goldman and Citi might not come to pass—but not because the energy crisis is over. Far from it; today, U.K. gas prices are six times what they averaged between 2016 and 2021.Rather, energy price caps proposed by the new U.K. government headed by Prime Minister Liz Truss, will help shield households from market prices. Those caps will hold the cost of a typical U.K. household’s annual energy bill to £2,500 for two years.Though providing much-needed relief to U.K. households, the energy price caps come with a steep cost of £100 billion, a bill that the government will have to foot somehow. That was already putting pressure on the pound, and then the market was hit by a shocker late last week.Borrowed MoneyOn Friday, Prime Minister Truss’ government unveiled a package of tax cuts designed to boost growth. The budget contained tax reductions for Britain’s highest earners and corporations in a model that reminded many economists of the “trickle-down economics” of the Reagan and Bush administrations in the U.S.The package is estimated to cost £161 billion over five years. Many are predicting the policies won’t work to sustainably boost growth. Moreover, any short-term economic benefits would run counter to the Bank of England’s goal of slowing the U.K. economy to bring inflation down.As the U.K. is already running steep budget and trade deficits, the government’s spending must be funded by foreign investors, who will demand steep discounts on British assets before they step in.Currency traders certainly had this in mind when they sent the pound plummeting earlier this week.Value In UK Stocks?Things look grim for the U.K. economy and asset prices in the near term. But with the pound at its lowest level ever, British assets could be attractive for value investors who can look past the current economic turmoil.The iShares MSCI United Kingdom ETF (EWU), which holds U.K. stocks, is down by 21.5% so far in 2022, which might not seem like much in a year in which the S&P 500 is lower by 22.8%.But valuations for U.K. stocks are much cheaper than their U.S. counterparts. According to data from Bloomberg, the forward price-to-earnings ratio for the MSCI United Kingdom Index is 8.2 versus 15.4 for the S&P 500.In fact, valuations for U.K. companies are the cheapest they have been since the financial crisis. To be sure, “cheap” alone isn’t a good enough reason to buy, but it could be the starting point of a more extensive due diligence process.In any case, investors in U.K. assets will have to brace for a lot more potential volatility as the country’s economic and currency crises potentially intensify.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9918816136,"gmtCreate":1664354997125,"gmtModify":1676537439402,"author":{"id":"3575596393140561","authorId":"3575596393140561","name":"tinacheekyle","avatar":"https://static.tigerbbs.com/d2373874b2bf69f2637ce056a6f56ada","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3575596393140561","authorIdStr":"3575596393140561"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9918816136","repostId":2270869270,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9918895772,"gmtCreate":1664350713196,"gmtModify":1676537438617,"author":{"id":"3582502134655895","authorId":"3582502134655895","name":"Bspn","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3582502134655895","authorIdStr":"3582502134655895"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9918895772","repostId":2270869270,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9918807298,"gmtCreate":1664348647814,"gmtModify":1676537438146,"author":{"id":"3569316529855154","authorId":"3569316529855154","name":"Deonc","avatar":"https://static.tigerbbs.com/d9aa45dd2eb58357f6477dcfb99d1415","vip":1,"crmLevel":3,"crmLevelSwitch":1,"idStr":"3569316529855154","authorIdStr":"3569316529855154"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9918807298","repostId":2270869270,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9918808068,"gmtCreate":1664347150655,"gmtModify":1676537437954,"author":{"id":"3571345352614779","authorId":"3571345352614779","name":"xiaobaii","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3571345352614779","authorIdStr":"3571345352614779"},"htmlText":"like &amp; 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