Will negative interest rates in the UK trigger an investor top-up?
Published 05-FEB-2021 10:22 A.M.
|
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
The Bank of England’s threat of negative interest rates will encourage market-wise investors to increase their exposure to UK stocks, says Nigel Green CEO of one of the world’s largest independent financial advisory organisations, deVere Group.
The UK’s central bank on Thursday committed to leaving interest rates unchanged at 0.1% and maintaining its agenda of quantitative easing (QE) – the BoE’s programme buying government bonds and corporate bonds.
The UK’s benchmark fell on the Bank of England’s "unusually uncertain" outlook for the economy. This is a predictable knee-jerk reaction from the markets.
For the time being, the BoE avoided taking the plunge into negative interest rates, instead deciding the less risky measure is to maintain the Bank’s £895 billion quantitative easing (QE) programme.
However, it is clear that as the Bank tries to bolster the pandemic-stricken British economy, negative interest rates remain part of the ‘tool kit.’
Indeed, they have been very deliberate in not taking this highly controversial option off the table.
Should the BoE decide ultimately to take rates below zero, as already tried in the European Union and Japan, it would be the first time that they have done so since the Bank was founded in the 17th century.
Question marks remain as to whether negative rates would achieve the primary aim of supporting the economy.
This is because the move could be viewed by consumers and investors that the economy is in a perilous position and, as a result, trigger a serious drop in consumer and investor demand.
Whilst the debate on whether negative interest rates help the ‘real economy’ or not will continue, there is no doubt that they would help boost financial asset prices.
With this now front and centre in their minds, investors will now be looking to top-up their portfolios before the next round of cuts and the likely subsequent price increase. They’ll be moving to capitalise on the lower entry points now before the next significant rally.
In addition, those with savings in the bank are already getting no return thanks to the ultra-low interest rates. The threat of negative rates will offer them more reason to increase their exposure to stocks.
It’s my view that with the economy how it is, and the hint-dropping from Bank of England, rate cuts are looming as it’s increasingly clear that the quantitative easing agenda is not sustainable.
This will push up financial asset prices and, as such, many investors will be wanting to get ahead of the curve and build on their wealth. The best way, as ever, is to bolster portfolios, ensuring they are properly diversified across asset class, sector, region and currencies.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.
