Hello and welcome. Is this the end of easy money? Central banks around the world are beginning to dial back on pandemic era policies to fight rising inflation leading the charge is the U. S. Federal Reserve which is set to raise rates for the first time in three years. So what does this mean for you and your money?
I'm solo ramesh from money mind at C. N. A. I'll be looking today at the five things you need to know about rising interest rates with me this morning chris brankin, ceo of td Ameritrade Singapore and bench assistant professor at anyone's business. Thank you both for joining me today. Thank you for having me.
Thanks for having us
chris the Fed leading the way. But we're going to be feeling the heat here in Asia as well.
Absolutely. The Fed being central bank for the largest economy in the world, it's impossible to avoid it. If the Fed makes a move in one direction, you know, you're gonna feel that ripples across the globe. I wouldn't be surprised if we see that 50 basis point hike and if we do and that would be slightly larger initial impacts. Especially felt around the globe because other central
banks might act a little bit sooner. Might have a little more ammunition in terms of when they might start raising rates to kind of counteract inflation. We're seeing around the globe. Everything from supply chains to shipping crunches these things that are really been impactful
across the globe? Over the last
9 to 12 months?
I'll put this question to both of you Perhaps starting with Ben. So what does all this mean for markets, Are we going to see another wave of this whole volatility again? Yeah, that's a good question to try to figure out what we might expect the market to do. It's worth thinking about the context with which we came into this in the first place.
Alright, interest rates have been low even before Covid and since Covid hit, the Fed came out and committed to printing as much money as it needed to restore faith in the system so that we can stop the liquidity freeze. That was happening in March of 2020. Since then there's this term, everything has rallied right. It's been a bull market in almost every single asset. The more risk you took, the more reward you ended up getting. So the market has been used to this kind of
really high returns. If we look at the performance of the United States stock market, it's way higher than it's been relative to its long term historical average,
we've seen a shift starting from november from more of the growth stocks into more kind of the value type sectors. Number one is energy markets. And if you've been involved in any of the energy sector's futures, any of the E. T. F. You know, upstream downstream quarter plus, you've been rewarded for it.
Emerging market space is also an interesting spot historically, as we've seen our customers basically over the last, you know, 30 year period, if we get into a rising interest rate environment, the emerging market space has always had some relative strength comparative to maybe some of the bigger growth stocks that we've seen in the US As we kind of hopefully get to a little more normalization of current runaway inflation markets, maybe have a little
less volatility. But in the near term I expect volatility to be a little bit choppy. There's gonna be some opportunities to buy some of these dips as we've seen over the last 12 months.
So chris what if I'm your average retailer who bought into these tech stocks and growth stocks and I'm seeing them plummeting now. What's my move? How do I sort of recalibrate what's in my portfolio?
I would say, look if your longer term horizon is that you still believe that this tech space is still going to remain in a growth area. If we see a 10% pullback in some of these large tech names like Apple Amazon Google the metaverse. This would potentially be an opportunity to add to some of that position.
We're looking at valuations in the market now that are historical levels according to some metrics, but not all there even more stretched than they were in the dot com bubble. So it is worth understanding that if you entered around the top, it can actually continue to go down and deliver a lot of pain, right? So if we think, what is the stock market, it's a pain delivery mechanism, right? It transfers pain from one person to someone else. If you're able and willing to bear the pain, you
typically are rewarded. The lesson for the retail investor is to really think carefully about the investment horizon. Everyone is a long term investor until the market is down, right? But at the same time, you really have to ask yourself, how much pain are you willing to tolerate with the understanding that the past 23 years has really not been representative of the amount of pain that the stock market can deliver.
Great point. Ben, one thing that we've seen maybe our customers and customers around the globe is maybe there's been a little more complacent in their overall, we'll call it investing strategies or horizons because the last couple of years, it was literally close your eyes and by All 11 sectors in the S&;P 500 are up. If you buy and it dropped down a little bit and
you bought some more. Well, you were rewarded. So, I think, you know, as we come into this sustained volatility, which I think we're going to see through all of 22 is there's gonna be some opportunities. And whether that's across the growth, whether it's energy, whether it's value investors, especially in the retail perspective, they'd have to rebalance or look to rebalance their portfolios a little more than they have in the past, you know.
So if you have positions that go up 30 40% no one's ever gone broke from taking profits or locking some profits in off the
table. Okay, so here's what we have spoken about so far. Number one impact rising rates going to be felt in asia more volatility expected for stock markets and look to diversify maybe in things like energy value stocks, emerging markets. Now, I want to go into something that affects everyone whether you invest or not. And that's the property market and the impact of rising rates here.
So what's the story for people like myself, maybe who took advantage of these really low rates in the last two years to buy a home? What happens to mortgage payments now? And do you expect this to sort of cool the property market globally, then I'll start with you. Yeah. So it's worth thinking about how different markets function. So in a place like Singapore, most mortgages here are all adjustable rates. Right? And so when rates rise, your mortgage payments will rise.
And when rates rise also, it tends to either decrease the house price or at least slow down the house price growth. Unfortunately, if you had just very recently purchased both of those two things are negative for you. Right. Whereas compared to a market like the United States where you can lock in a fixed rate mortgage for 30 years, changes in rates don't really affect you that much, only to the extent that it affects capital gains or
losses on the house. But the bottom line is if you bought a house to stay for this generation or the next couple of generations, and you were never thinking about selling your house and downgrading or upgrading in the first place, then it shouldn't affect you that much. Right? Because the mortgage will affect your monthly payments, but we're not expecting the monthly payments to triple or quadruple at this point. Okay. And before we run things off, I just want to get a
quick take from both of you. Higher interest rates. Not always a bad thing. Right? Yeah. So having interest rates that are above zero give the monetary authority broadly speaking across the world More ammunition, more tools in their toolkit to actually respond to economic cycles. To me, this is a normalization of the market. We're going back to how the stock market has behaved in the past 400 years.
Right? And so it's really what we had in the past three years is not representative of how financial markets and the economy function together. So, overall, to me, it's a return to normalcy. Having some inflation is good, it might be a little higher than what we want now. We think maybe this is a term transitory keeps getting stretched, but we're thinking
it's not a decade long event, right? It might be a 1 to 2 year type event as the world's economy starts to come back online and supply chains are restored and so on to me overall, we're returning to a good place.
Things aren't all bad. That means there's some underlying health of the economy, especially if we look at it from the US side, the US GDP is made up 70% from the U. S. Consumer. That means we have strong job from the labor department, some wage growth. Maybe there's some things that are helping to support the higher type of inflation that we're seeing and right now and over the last 6 to 12 month period you've seen, you know higher prices, less supply and people are willing to
pay it and
they're and they're continuing to do that over this period of time. Some kind of staff that I'm always throwing out there is the last 100 years, inflation has averaged about 2.9% per year and stocks have averaged about 10.3% now. Look, that's not saying that it's always going to happen every
year like that. But over the long term, if your investment horizon, you know, it's spread out over many years, it's always been better to be invested over the long term than literally stuffing your money into your
pillow. Okay, so the impact on asia more volatility ahead but stay invested. Don't panic diversify and be prepared to fork out more, but maybe not that much more for mortgage payments. So chris and Ben, thank you very much for joining me on this podcast.
Thanks Sona. Thanks Ben.
Thank you very much. And that's top five things you need to know about rising interest rates. Mhm.