OMGI’s Ormiston: euro at $1.30 spells pain

Added 13th September 2017

Old Mutual Global Investors’ Ian Ormiston believes the strong euro is not having a material impact on European companies, but warns this could change if it breaches $1.30.

OMGI’s Ormiston: euro at $1.30 spells pain

Ormiston, manager of the Old Mutual Europe (ex UK) Smaller Companies Fund, said not many companies are fazed by the risk posed by a bullish euro to the translation of overseas profits.

The euro has hovered around the $1.20 mark recently, reaching a high of $1.2092 last week, but Ormiston said many European companies in his portfolio are high-end industrial businesses, often market leaders, that can put through price increases to cover transaction exposure.

“No one is particularly worried about translation of overseas profits,” he said. “I met 15 or so Nordic companies recently and nobody is complaining, nobody is talking about hitting margins or losing market share.”

Europe in better shape

Ormiston admitted a EUR/USD level of 1.20 is “not great” but is manageable “in small cap world” which is largely insulated from foreign earnings. Some of the biggest international businesses in Europe on the other hand have had to take small profit downgrades, he said.

He added: “Currencies always overshoot, so what is fair value? We have been there before, but you could argue Europe is in a lot better shape now.

“Where we would start to see some pain is 1.30-1.40.”

Pain threshold

“Where we would start to see some pain is $1.30-1.40,” he said. “Who knows, the dollar could be close to bottoming with a sentiment cycle around the Trump/Republican agenda.

“If it goes the other way, it gives the ECB more wiggle room and they can then start to remove stimulus.”

Recent additions to Ormiston’s portfolio include Swedish manufacturer Dometic, which produces appliances for the recreational vehicles, marine and auto industries, and the German-listed Italian restaurant chain Vapiano.

 

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Sebastian joined Last Word Media in 2017 as editor of Portfolio Adviser. He previously spent 10 years as a journalist and editor in the UK institutional investment sector, most recently as editor of Portfolio Institutional. Prior to that, he held several roles at Professional Pensions which is part of Incisive Media.

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