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

CapeTalk welcomes all comments that are constructive, contribute to discussions in a meaningful manner and take stories forward.

However, we will NOT condone the following:

  • Racism (including offensive comments based on ethnicity and nationality)
  • Sexism
  • Homophobia
  • Religious intolerance
  • Cyber bullying
  • Hate speech
  • Derogatory language
  • Comments inciting violence.

We ask that your comments remain relevant to the articles they appear on and do not include general banter or conversation as this dilutes the effectiveness of the comments section.

We strive to make the CapeTalk community a safe and welcoming space for all.

CapeTalk reserves the right to: 1) remove any comments that do not follow the above guidelines; and, 2) ban users who repeatedly infringe the rules.

Should you find any comments upsetting or offensive you can also flag them and we will assess it against our guidelines.

CapeTalk is constantly reviewing its comments policy in order to create an environment conducive to constructive conversations.

Read More
Starbucks – try as they might – just can’t get this Afrikaans guy’s name right

Starbucks – try as they might – just can’t get this Afrikaans guy’s name right

Eben du Toit is “trending” on the US version of Huffington Post. Why? Because Starbucks can’t get his name right.

Why the SA Reserve Bank cut rates (against the expectation of 92% of economists)

Why the SA Reserve Bank cut rates (against the expectation of 92% of economists)

The Money Show’s Bruce Whitfield interviews Nedbank Economist Busisiwe Radebe about Governor Lesetja Kganyago’s surprise move.

Already submitted your tax return? Sorry, you may have to do it again…

Already submitted your tax return? Sorry, you may have to do it again…

Sars is experiencing technical issues. Have a medical aid, retirement fund or travel allowance? You may want to check this out…

Location! Location! Location! What makes a business's space work (or fail)...

Location! Location! Location! What makes a business's space work (or fail)...

Bruce Whitfield interviews Aurik Business Accelerator founder Pavlo Phitidis for his weekly small business feature.

Super-saver Julia is human after all! She's struggling to keep it up...

Super-saver Julia is human after all! She's struggling to keep it up...

Bruce Whitfield interviews super-saver Julia and her advisor Warren Ingram. Is she keeping it up? Because life (and kids!) happen…

Meet Andrew Donaldson, former Deputy Director General at Treasury

Meet Andrew Donaldson, former Deputy Director General at Treasury

The Money Show’s Bruce Whitfield gets the inside scoop from Donaldson, who spent 24 years at Treasury.

Popular articles
Guptas deny Bell Pottinger links in exclusive BBC interview

Guptas deny Bell Pottinger links in exclusive BBC interview

The family spoke via their spokesperson, Gary Naidoo who claims the Gupta's were not involved in pushing the 'WMC' narrative.

Is marriage overrated? Listeners share differing views

Is marriage overrated? Listeners share differing views

Relationship guru and sexologist Dr Eve says the notion of the 'marriage advantage' is being debunked by many couples and groups.

What justifies a R1 million price tag for a parking bay?

What justifies a R1 million price tag for a parking bay?

CEO at Advance On Point Solutions looks at the criteria used when pricing the exorbitant parking bays in the Atlantic Seaboard.

Why do Cape roads have faded markings?

Why do Cape roads have faded markings?

Former senior inspector for City of CT Traffic Services attributes this problem to the quality of paint used.

Disgruntled client behind hoax email - MiWay CEO

Disgruntled client behind hoax email - MiWay CEO

MiWay CEO Rene Otto has described a bogus email, in which black clients are referred to as 'baboons', as "fake news on steroids".

Glacier reveals bodies of Swiss couple missing for 75 years

Glacier reveals bodies of Swiss couple missing for 75 years

Adam Gilchrist has more on this tragedy that left 7 children orphaned.

[LISTEN] Roger Federer's SA born mother says her son hates to lose

[LISTEN] Roger Federer's SA born mother says her son hates to lose

South African born Lynette Federer speaks to CapeTalk's Kieno Kammies about her son who clinched his 8th Wimbledon title.