Unilever hit by the emerging-market sell-off

Sliding emerging-market currencies have hit the growth targets of consumer goods giant Unilever.

Shares in consumer goods giant Unilever slid by 4% this week after it lowered its sales growth targets for the three months to the end of September.

Revenue growth would now be 3%-3.5%, it said, rather than 4.5%-5%. It blamed "significant currency weakness" in emerging markets.

What the commentators said

Multinationals suffer when weakened emerging-market currencies are translated back into the Western currency they report in, while buying raw materials locally becomes more expensive.

Local consumers also take fright at the cost when buying imported goods, especially if the company has raised local prices to make up for the forex slide.

The trend may not change soon. Emerging-market currencies could weaken further when US Federal Reserve tightening finally kicks in. Making up the slack elsewhere will be difficult, as revenue growth in developed markets has been very lacklustre.

Unilver's overall sales growth this year could be negative, reckoned James Edwards Jones of RBC Capital. Currency movements could trim it by 6%, and it has only averaged 5% a year in the past four years.

The lesson for investors "isn't to avoid emerging markets", said John Jannarone in The Wall Street Journal. Sales growth there will still outpace that of developed markets in the medium-term.

But when emerging-market currencies are caught in a sell-off, as they were this summer, investors in big multinationals should "pay attention rather than wait for companies to ring alarm bells".

Recommended

Three sustainable stocks that are doing well by doing good
Share tips

Three sustainable stocks that are doing well by doing good

Professional investor Peter Michaelis of the Liontrust Sustainable Investment Team picks three stocks to buy that are helping to create a cleaner, saf…
26 Jul 2021
Share tips of the week – 23 July
Share tips

Share tips of the week – 23 July

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
23 Jul 2021
Will Zoom’s $15bn purchase help it expand?
Tech stocks

Will Zoom’s $15bn purchase help it expand?

The videoconferencing platform became a household name during the pandemic, but it now needs new sources of growth. Alex Rankine reports
23 Jul 2021
Philip Morris goes “beyond nicotine”
Stocks and shares

Philip Morris goes “beyond nicotine”

US tobacco giant Philip Morris International has agreed to pay £1bn for British inhaler specialist Vectura.
23 Jul 2021

Most Popular

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021