How to invest when interest rates are low

(Click here for more articles on investing and personal finance.)

The Money Show’s Bruce Whitfield interviewed Ashburton Chief Investment Officer Paolo Senatore.

The first thing we need to do, says Senatore, is differentiate between historically low and even negative interest rates in many developed markets and relatively higher rates domestically.

  • Rates have been structurally low in developed markets since the financial crisis of 2008. They are likely to remain lower for longer due to concerns about growth, amplified by Brexit.

  • This environment tends to be supportive of equity market ratings through elevated price-to-earnings ratios as investors are willing to tolerate lower yields. Look for defensive companies with strong balance sheets and decent dividends to outperform.

  • While bond yields in developed markets trend toward the negative; emerging market bonds (including our own) become attractive in what is known as the “Hunt for Yield”. This has already begun to play out with strength in the local bond market.

  • Locally interest rates have been increasing from the beginning of 2014 when prime was at 8.5% to today’s rate of 10.5%. This, coupled with lower growth and a number of other factors, has put tremendous pressure on the consumer and business in general. There are early indications that the rate hiking cycle in South Africa may well be coming to an end, but investors should be cautious as growth expectations remain subdued.

  • Having said that, the sectors that have borne the brunt of the difficult environment would naturally become beneficiaries if the Sarb reduces rates. Here one would look at banks and financials in general, which are trading at relatively low multiples, credit retailers and South African focused industrials. Investors should exercise prudence and patience as the broad based economic outlook remains fragile.

Listen to the audio below for more detail.

Click here (then“like” the page) to follow Bruce on Facebook.

Enter your email address in the form below to receive a newsletter containing the seven most-read articles of the week from Bruce Whitfield’s The Money Show every Friday morning in your inbox.

Subscribe to our Business Wrap Newsletter

Read More
Real house prices are falling (and the declines are gathering pace)

Real house prices are falling (and the declines are gathering pace)

November was the seventh consecutive month of slowing price growth. And there is no end in sight, according to FNB.

How to raise funding (at each stage of your business’ growth)

How to raise funding (at each stage of your business’ growth)

The Money Show’s Bruce Whitfield interviews Aurik Business Accelerator’s Pavlo Phitidis.

How to best invest a lump sum

How to best invest a lump sum

Got some money in the bank, earning peanuts in interest? Here’s how to make it work harder for you in the most tax efficient way…

Judge Dennis Davis on why Pravin Gordhan ordered him to probe Sars

Judge Dennis Davis on why Pravin Gordhan ordered him to probe Sars

Gordhan doesn’t trust Sars' information “because of a lack of accountability and cooperation from the Sars top management”.

The story of Wellness Warehouse (and how it won the niche health market)

The story of Wellness Warehouse (and how it won the niche health market)

The Money Show’s Bruce Whitfield interviews Wellness Warehouse cofounder Dr Sean Gomes.

Mineral and Petroleum Resources Development Amendment Bill 101

Mineral and Petroleum Resources Development Amendment Bill 101

Oil and gas could revolutionise the South African economy. 5 important things to know about the MPRD Amendment Bill.