tag:blogger.com,1999:blog-8924627146167959132.post7362706777148503281..comments2023-11-05T17:50:25.696+08:00Comments on Singapore Stock Exchange - Equity Investments: What stocks to buy in an interest rate rising environment?Eric Hohttp://www.blogger.com/profile/06610485136655188450noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8924627146167959132.post-83975826409092755542017-03-02T16:15:58.446+08:002017-03-02T16:15:58.446+08:00For example:
Bank has stable cashflow (predictabl...For example:<br /><br />Bank has stable cashflow (predictable) and will make a good profit in high-interest rate environment. (positively correlated to interest rate)<br /><br />Startup has unstable cashflow (unpredictable) and will make a low profit or loss in high-interest rate environment because its funding cost has gone up. (negatively correlated to interest rate)Eric Hohttps://www.blogger.com/profile/06610485136655188450noreply@blogger.comtag:blogger.com,1999:blog-8924627146167959132.post-90430258926252689832017-03-02T15:35:33.789+08:002017-03-02T15:35:33.789+08:00Why is this so?
When the economy is good, the int...Why is this so?<br /><br />When the economy is good, the interest rate will rise to contain inflation and a company can make a good profit because business is thriving. <br /><br />When the economy is bad, the interest rate will fall to boost economy. However, a company profit will decline because the cashflow will contract due to bad business. Therefore, interest rate sensitivity is positively correlated to the stability of cashflow.<br /><br />Gd economy ---> interest rate up ----> High profit<br />Bad economy ---> interest rate down ---> Low profit<br />(interest rate up=profit up, interest rate down=profit down) ===> Stable cashflow(predictable) is positively correlated to interest rates<br /><br />Stable cashflow (predictable) ---> low volatility (more stable, more sensitive to interest rate)<br /><br />Unstable cashflow (unpredictable) ---> high volatility (less stable, less sensitive to interest rate)Eric Hohttps://www.blogger.com/profile/06610485136655188450noreply@blogger.com