Investors questioning how to respond to an interest-rate environment that may now be transforming from a stable, ultra-low stable interest environment toward a higher medium to long-term level are trying to price in how these future rate hikes will affect a given portfolio. Unique sectors tend to respond differently to rate hikes, and depending on the assumptions made by investors given the recent indications by global central banks that rates may be on the rise, now may be the time to do some portfolio re-balancing and consider changing portfolio weights for the short and medium-term to avoid some of the market turmoil which may be to come for securities in the REITs and utilities sectors.
My take on the current interest-sensitive equities selloff is that many of the concerns posed by investors are overblown in today’s current environment. First of all, Canada is a country which is largely over levered (as are many developed nations around the world), and fears that rising interest rates will drive a housing correction or a potential recession are reasonable, in my opinion.
Secondly, concerns that the U.S. Federal Reserve or the European Central Bank raising rates or letting some of the equities held on the balance sheets of central banks expire over time will force Canada to follow suit are equally unlikely, as Bank of Canada Governor Stephen Poloz has repeatedly stated the independence of Canadian monetary and fiscal policy from the rest of the developed world, signaling that a unique stance may continue to be had by Canada moving forward. After all, the Bank of Canada did shock markets with interest rate cuts at a time when other central banks were raising rates, indicative of what may be to come over the near to medium-term.
Invest Wisely, my friends.
