The Investor - Moneyweb's monthly investment magazine Issue 6 | Page 45

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,”