In Not The Daily News by 10X Investments (on Classic Business on Thursday September 22), 10X’s Head of Investments, Chris Eddy, talked to Michael Avery about rising interest rates and what that might mean for investors.
The period of monetary policy tightening we have entered, which Avery termed the ‘revenge of the Fed’, comes after a long period of “stimulatory” policy, where rates were at zero or even below. Such low rates pushed investors up the risk spectrum and into equities, which boomed in an environment that became known as ‘Tina’ (There Is No Alternative … to equities).
Now that that ‘Tina has left the building’ and there is an alternative to equities, Eddy said, the market is starting to recalibrate, which has “spurred the volatility we have seen this year”.
Higher interest rates attract capital and with the US central bank hiking rates really aggressively “we have seen lots of money flow into US, and the story of this year has been material dollar strength”. Eddy noted that often at times of economic stress emerging market currencies come under more strain, but this has not been the case this time around.
“Other developed market currencies have weakened against the dollar more than emerging markets have.”
The rand is feeling some pain (down 10%) against the mighty dollar but things are looking worse for currencies in developed markets, such the pound, which is off 17%, the euro, down 14% and the Japanese Yen, off 20%.
“That is such an important point to make,” said Avery, who noted that everyone is looking at the rand and yes, it has weakened against the dollar but, against other currencies, not that much, and “it is not just loadshedding and Eskom” causing the pain.
So it’s not all bad news. But, let’s all hope that central banks don’t tighten too aggressively and push the global economy into a recession.