Editor’s note: This article was first published in October 2010. It reflects that month’s “currency war” (weak dollar, appreciating Latin American currencies) and the companies’ exposures at that time. Iberdrola Renovables no longer trades separately, as Iberdrola reabsorbed it in 2011.
Spanish companies have become much more international in recent years, especially in the Americas. How could a weaker dollar affect them? And what about the risk that Latin American countries might take measures against the appreciation of their currencies?
In the United States, it’s worth paying particular attention to Acerinox, Ferrovial, Iberdrola Renovables and, more marginally, BBVA and Santander. With a weaker dollar, their consolidated profits in euros could suffer slightly.
In the particular case of Acerinox, for example, there is a double effect: on the one hand, its US production becomes more competitive, but on the other, its profits shrink when converted into euros.
However, we should focus more on the first effect, since competitiveness in the United States matters more. Companies hedge their currency risk, and in the end the impact of exchange-rate volatility is minimal.
In Latin America, the impact of currencies on Spanish companies is positive, since those currencies keep rising. Telefónica, BBVA and Santander have nothing to fear on that front.
In the United Kingdom, if the pound appreciates, companies such as Telefónica and Ferrovial could come out ahead. But besides looking at the currency in which they earn their revenue, you have to assess the currency in which they carry their costs and debts.
In short: If the currency appreciates, earnings increase, but so do debts, although one can offset the other.
Source: Ideal (Spanish daily newspaper), adapted and edited.
Further reading
Featured image: Discasto, CC BY-SA 4.0, via Wikimedia Commons.
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