What The Big Mac Says About The British Pound Sterling | Summary and Q&A

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February 12, 2019
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What The Big Mac Says About The British Pound Sterling

TL;DR

The Big Mac Index suggests that the British Pound is undervalued and British equities are cheap, presenting a potential investment opportunity.

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Questions & Answers

Q: What is the Big Mac Index, and what does it suggest about the British Pound?

The Big Mac Index is a measure of purchasing power parity based on the price of a Big Mac in different countries. It suggests that the British Pound is 27% undervalued against the US dollar.

Q: Why are British equities considered cheap?

British equities are among the lowest rated in the Western world compared to US companies. This makes them cheap for international investors who see an opportunity for investment.

Q: Why is the historic yield on the FTSE 100 significant?

The FTSE 100 has a historic yield of 4.7%, which is a high level indicating widespread corporate misery. It suggests that some companies may be over-distributing dividends and could face painful cuts in the future.

Q: What is the potential opportunity for British businesses?

With low Sterling, cheap corporate valuations, and little inflation, March 29th could signal a potential investment opportunity for those looking for bargains in British businesses. Companies that are currently hesitant to invest may take the plunge in a few months' time.

Summary & Key Takeaways

  • The Big Mac Index is an imperfect measure of purchasing power parity, but it suggests that the British Pound is 27% undervalued against the US dollar.

  • British equities are among the lowest rated in the Western world compared to US companies, making them cheap for international investors.

  • The historic yield on the FTSE 100 is 4.7%, signaling widespread corporate misery and potential dividend cuts.

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