These days rates are very low in our savings a/cs….hands up…how many of us here have grumbled …. “what…interest rates so low? …. so stupid! might as well put the money into investments!”
Ok i have to stop typing now…. my 2 hands are up….
Ok im back.
So this explains the surge in interest recently (past 1yr or so) in S-Reits (Singapore REITS) and so many reits listings here … OUE and SPH eh? (Mandarin Hotel Orchard…Paragon, Clementi Mall etc….)
If interest rates starts to rise again (back in 1998….fixed deposits offers were at….5%!!!) more conservative investors may want to exit riskier products (stocks, REITS) and reach for much safer products (Government bonds etc) ….
And now…. we can see more advisories start to back off on REITs….
Do take note on the “new” less “bullishness” in the REITs as SGS’s (singapore government securities….think the local version of US Treasury Bills) rates starts to rise…
The simplified rationale is this….SGS’s rates are considered “risk free”… you are almost 100% sure the singapore government will not default on it’s debt (yes, if you buy bonds, you are the “lender”…..)
So if this “risk free” rates rises….that means “free money” is getting more…..why should you risk your money on so called “secure and stable” products like REITS which gives out 5-8% rates…but comes with the risk of larger capital (stock price) swings?
So higher rates means more investors will tend to “flee” interest / dividends based products….
This is the point of view for the retail investors….of course the repercussion in rising interest rates is much wider…. on the macro level….
Businesses (or even you….I will come to that….) will find that increasingly, borrowing costs (financing that joint venture into…Myanmar? the hot thing now eh?) will rise as your business loan with perhaps 7% rate is now at 8%?
For us, perhaps that car loan, home loan, education loan with low interest rates of 2-5% may start to get to 3-6% instead….
This all may lead to lower economic activity (eg, lesser spending…by you and business) thus inadvertedly dragging down….gasp….the stock prices…. 🙂
Hope I have not
frightened confused you :p
On a brighter note…market breadth is turning up! hahha