Don’t bank on this, but historical data shows that declining interest rate phases are particularly favourable environments for equity investments.
So many things in our daily lives go hand in hand, whether it’s sunshine and summer, tea and biscuits or Hashim Amla and centuries. When we take a closer look at our stock market and interest rates, we will note that even these two go hand in hand.
On 20 July, the South African Reserve Bank (SARB) announced its decision to, for the first time in five years, lower interest rates by 0.25 percentage points. This decision follows after local GDP showed negative growth for two quarters in a row – something that plunged us right back into a full-blown recession. Although the interest rate cut may not be a huge saving for the average South African consumer, the message that the SARB is trying to send is very positive, namely it’s attempting to stimulate growth.
However, the question of how this will affect local shares now that we find ourselves in a declining interest rate phase remains. In an attempt to answer this question, I would like to refer to the period since 1973 as an example (please note that historical figures do not guarantee future performance in any way whatsoever).
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