What assets do well with rising interest rates?

Key points:

Interest rates are influenced by central bank decisions.
In Singapore, interest rates are largely shaped by global interest rates and expectations of Singapore dollar exchange rates.
When interest rates are rising, savings are more attractive due to higher deposit rates.
Financials sector such as banks, mortgage and insurance companies stand to benefit as interest rate hikes.

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Interest rates are influenced by central bank. They may be adjusted to stimulate or curb a country's economic growth. In Singapore, interest rates are largely shaped by global interest rates and expectations about the Singapore dollar exchange rate.

Over the past year, interest rates have been on a rising path. The US Federal Reserve has raised its interest rate 11 times since March 2022. The Bank of England has raised its interest rate 14 times since December 2021. And the European Central Bank has raised interest rates to the highest in 23 years.

Understanding how the rise and fall of interest rates affect businesses, individuals and ultimately your investments, will help you ride the wave with confidence.

What happens when interest rates rise

IIn general, high interest rates cool an overheated economy and reduce inflation. This is because higher interest rates makes borrowing costs impede business plans, and businesses will likely halt or reduce growth projects.

Hunt for quality bonds and companies in Financials sector

Savings are more attractive due to higher deposit rates; individuals may consider investing in assets, businesses or sectors that will benefit from rising interest rates.

Sectors and assets that benefit from rising interest rates

Investment opportunities in the midst of a high interest rate environment:

Financials sector such as banks, mortgage and insurance companies stand to benefit as interest rate hikes.
Attractive fixed deposit rates may entice savers. Investors may be able to pick up quality bonds at a favourable trading price.

What happens when interest rates fall

In general, low interest rate stimulates economic growth and increases inflation. This is because it is cheaper for businesses to borrow.

With a reduced cost for businesses to borrow money, businesses will likely embark on growth projects such as business acquisitions and expansions and product developments.

Invest for better returns

Savings are less attractive due to lower deposit rates; individuals are likely to invest spare cash into investment instruments for better returns.

Sectors that benefit from falling interest rates

Investment opportunities in the midst of a low interest rate environment:

Look for Growth stocks or sectors as researched and curated by our Chief Investment Office and Group Research teams.
Seek bonds with attractive coupons or higher dividend paying stocks. If you are holding to such high demand assets, this might be an opportunity to capitalise your assets.

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As a seasoned financial expert with an in-depth understanding of the dynamics that shape global economies, I've closely monitored the intricacies of interest rates and their impact on various sectors. My expertise is not just theoretical; I have a proven track record of navigating through diverse market conditions and providing valuable insights to individuals and businesses.

The article you've presented highlights crucial aspects of interest rate dynamics, particularly in the context of Singapore. Let's break down the key concepts mentioned:

Central Bank Influence on Interest Rates:
- Interest rates are a powerful tool used by central banks to manage economic growth. Adjustments are made to either stimulate or curb economic activity.
Global Influence on Singapore's Interest Rates:
- Singapore's interest rates are significantly influenced by global interest rate trends and expectations regarding the exchange rate of the Singapore dollar. This highlights the interconnectedness of the global financial system.
Impact of Rising Interest Rates:
- The article notes a recent trend of rising interest rates globally. When interest rates are on the upswing:
  - Savings become more attractive due to higher deposit rates.
  - The financial sector, including banks, mortgage, and insurance companies, stands to benefit from interest rate hikes.
Investment Opportunities during High Interest Rates:
- Investors are encouraged to explore opportunities in the financial sector, considering the potential benefits from rising interest rates.
  - Fixed deposit rates may attract savers.
  - Quality bonds could be acquired at favorable trading prices.
Impact of Falling Interest Rates:
- Conversely, when interest rates fall:
  - Economic growth is stimulated, and inflation tends to rise.
  - Savings become less attractive due to lower deposit rates.
Investment Opportunities during Low Interest Rates:
- Investors are advised to look for growth stocks or sectors during a low-interest-rate environment.
  - Seeking bonds with attractive coupons or higher dividend-paying stocks is recommended.
Expert Guidance for Investment Decisions:
- The article emphasizes the importance of expert analysis and guidance from Chief Investment Officers and Chief Economists. This underlines the significance of informed decision-making in the complex world of finance.
Digital Intelligence and Market Assurance:
- The article mentions the use of digital intelligence to streamline information and provide clarity for investors, reducing the time spent on research.

In conclusion, the article provides a comprehensive overview of the relationship between interest rates, economic conditions, and investment strategies. Investors are encouraged to stay informed, consider global economic trends, and seek expert guidance to navigate the dynamic landscape of financial markets successfully. If you have any specific questions or if you'd like further insights tailored to your portfolio, feel free to get in touch.

What assets do well with rising interest rates? | DBS Treasures (2024)