“The base rate is the Bank of England’s official lending rate which influences what borrowers pay and savers earn. It has already been painfully low for many years but this means even more increased pressure on savings accounts, plus pension funds could be hit,” said Siddarth Bhatia, chief investment officer at Guardian Wealth Management.
Therefore, expats have to explore different ways to invest their hard-earned savings to be able to achieve the returns they need for the perfect retirement. But how exactly can expats ride the cut and increase the performance of their savings?
“Although bad for cash savings, low interest rates tend to mean good news for stock markets, which is why we always highlight the importance of diversifying investments. Although recent events such as Brexit have made market investors cautious, asset prices (both stocks and bonds) have been in a bull market for the past seven years,” said Bhatia.
Part of the reason for stock markets being at an all-time high is due to central banks across the developed market supporting growth with lowered interest rates. When interest rates are low, the discount rate used to value stocks also gets lowered, thus increasing stock market valuations.
“While there are lots of bearish (negative) views around, the truth is that the US economy is still chugging along and in turn dragging the rest of the world higher up. Commodity prices, especially energy sectors have seen bottoms (the lowest price reached), thus emerging market indices also have bottomed out for now,” Bhatia said.
Therefore, this is good news for investors as it means a potential upward trend could be imminent, hence a great time to snap up these shares. Another tailwind for the bond market is that inflation has been non-existent, thus supporting bond prices.
“As long as interest rates stay low, there is more upside to the stock markets whilst bond markets, although expensive, will stay steady as long as central banks are dovish around the world,” Bhatia stated.