THE DIRECTION OF
THE RATE MOVE IS
ONLY HALF OF THE
EQUATION.
Most analysts expect that at its
September meeting the US Federal
Reserve will announce the first
increase in interest rates in that
country since 2006. In South Africa,
the Reserve Bank has already made
a move, raising the repo rate by 25
basis points in July.
This was the third hike in under two
years, following a 50 basis point
increase in January 2014 and 25
basis points in July last year. These
increases have so far been widely
spaced and add up to only a 1%
rise, but we are clearly in a phase of
monetary policy tightening.
This is a concern for many investors
in equity markets as there is
a definite negative correlation
between interest rates and equity
returns. As a general rule, as
interest rates go up, equity returns
come down.
However, chief investment officer at
PSG Wealth Adriaan Pask, suggests
that investors shouldn't just take
a one-dimensional approach to
this question.
“Yes, the general direction of the
rate move does have an impact, but
it's only 50% of the equation,”