Saturday 16 December 2017

Most UK listed firms hedging for pound to fall on Brexit

The pound is the worst-performing Group-of-10 currency this year, dropping about 4pc versus the dollar. Photo: Bloomberg
The pound is the worst-performing Group-of-10 currency this year, dropping about 4pc versus the dollar. Photo: Bloomberg

Patrick Graham

Four-fifths of Britain's major companies have taken steps to hedge against the risk that a vote to leave the European Union will knock more than 10pc off the value of sterling, a poll of almost 800 of Britain's top 1,000 companies showed on Wednesday.

The poll by banking researchers East&Partners, seen by Reuters before its release later on Wednesday, by contrast suggested 83pc of small and medium-sized firms think sterling will be unharmed by a vote for Brexit.

Only 22pc said they were hedged against such a risk.

The pound has fallen in value by around 10pc since the start of December as investors moved to price in expectations that a vote to leave would knock as much as another fifth off its value against the dollar.

The currency has steadied in the past month to trade around $1.44, still close to its lowest since the 2008 financial crash, but some major banks have forecast a fall to as low as $1.20 in the event of a vote to leave.

The survey showed listed firms on average providing for a 12pc fall and hedging 83pc of their currency exposure.

"It's clear from our research that financial managers at the UK's leading companies are fearful of an EU exit and the impact on their business," East&Partners Head of Client Services Simon Kleine said.

"They are also very focused on managing the uncertainty the referendum is creating, particularly in relation to FX risk."

The survey, based on conversations with chief financial officers and other senior employees at 777 large, stock exchange-listed companies, as well as a further 1,600 smaller UK firms, also showed a similar split on business decisions ahead of the vote.

Of the listed firms, 93pc said they had put hiring on hold because of the uncertainty, and 83pc that they had halted investment. Overall, 90.2pc said leaving the EU would be worse for their own business.

Of the 1,013 small and medium-sized businesses polled, 65.5pc said they believed leaving the EU would help business and only 20 to 30pc said they had put investment or hiring on hold in response.

"In East’s twice-yearly UK business FX market review, it is clear SMEs are becoming more sophisticated in their FX dealings through hedging their exposure," said Simon Kleine, head of client services at East&Partners Europe.

"While the results from this research show that they are less fearful of a vote to leave the UK, they are less prepared for its impact on their FX exposures compared to larger companies."


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