Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Sinking Dollar Could Hit European Stock Market’s Darlings

ForexSep 03, 2020 12:18AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. Sinking Dollar Could Hit European Stock Market’s Darlings

(Bloomberg) -- A wide disparity in performance between European equity sectors this year may be reduced because of the weakening U.S. dollar.

Many of this year’s best-performing subgroups -- think technology, chemicals and health care -- include companies selling most outside the region, and liable to see their sales translate to fewer euros. And with investors saying more gains may well be ahead for the currency after a 12% jump in just five months since the start of coronavirus lockdowns, the prospect increases of laggards such as lenders starting to catch up.

“Technology, health care and staples may be more vulnerable to appreciating currency than sectors like real estate, utilities, retail, telecoms and banks,” said Emmanuel Cau, head of equity strategy at Barclays (LON:BARC) Plc.

So far in the second half of the year, stock performance has been about what the business is, rather than where: technology has continued its market-topping performance in Europe over the past two months, despite it having the highest sales exposure outside of the region. Among subsectors, European semiconductor firms such as ASML Holding (NASDAQ:ASML) NV and Dialog Semiconductor Plc are the most global, the group’s sales within the region barely exceeding 10%, data compiled by Bloomberg show.

A stronger domestic currency “will not be nice to exporters in the euro zone,” according to Robert Greil, chief strategist at Merck Finck. The euro rose above $1.20 on Tuesday for the first time in more than two years, and with real U.S. interest rates falling, it should move toward its “purchasing power parity” at around $1.25 through the end of next year, Greil said.

UBS Wealth Management also expects the dollar to continue weakening, under pressure from Federal Reserve and U.S. administration policies. According to Chief Investment Officers Themis Themistocleous and Solita Marcelli, a Democrat sweep in the upcoming presidential election would help weaken the currency faster, with Republican policies more dollar-friendly.

The European Central Bank is paying attention. Chief Economist Philip Lane said at an online conference late Tuesday that the “the euro-dollar rate does matter” and noted that the rate feeds into monetary policy setting, causing the euro to trim gains.

Best and Worst

While most companies use hedging strategies to minimize the impact from foreign-exchange swings, the changing currency map is likely to influence investors’ thinking as they determine their future sector exposure. And the impact is already being felt.

Denmark’s H Lundbeck A/S, which makes drugs for Alzheimer’s and Parkinson’s disease, and French fighter-plane maker Dassault Aviation SA are among companies with significant dollar sales that have seen their shares slide since the end of June. By contrast, German forklift maker Kion Group AG, which sells its products mainly within Europe, and Denmark’s DSV Panalpina A/S have both risen more than 20% over the same period.

The same is true for British companies, with the pound having also strengthened against the dollar. Among recent U.K.-based winners is Kingfisher (LON:KGF) Plc, which gets the vast majority of revenue from the U.K. and France, and whose shares are up almost a quarter in the past two months.

That said, one may not want to overplay the currency effect just yet. A challenging foreign-exchange climate could lead European exporters to address the challenges through “cost cutting and other increased efficiencies,” according to Fidelity International strategist Carsten Roemheld.

©2020 Bloomberg L.P.

Sinking Dollar Could Hit European Stock Market’s Darlings

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Wijtha Gayan
Wijtha Gayan Sep 03, 2020 7:44AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
importance article
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email