How Does Low Interest Rates Effect Shares ?

The bank deposit interest rate war has virtually ended. Ubank has now lowered its one-year rate to 2.9 per cent, Westpac to 2.4 per cent. Banks are lifting their margins by giving their savers a belting around the head.  Markets are telling us that on the interest bearing securities front, yields are going to be low although there will be some rise in the US.

Low interest rates effectively means Aussie banks will move earnings from their customers to their shareholders and this could allow bank shares to rebound over the next few months.  As the world scrambles for yield in this tough environment Aussie bank and other industrial share yields will look very attractive… The world renowned investor Warren Buffet is looking around at our high yielding stocks !

Citibank is forecasting the Australian S&P/ASX200 index will rise to around 6,000 and while this article is for general interest and should not be taken as advice (and I am not making any predictions)  the interest rate environment is very conducive to such an increase.

What is more dangerous to Australia is, of course, what is happening in China. Chinese economic growth has slowed considerably but despite this the Chinese share market has skyrocketed this year fueled by a  frenzy of lending. BUT in the last week or so the Chinese market has fallen 13 per cent.  At this stage a 13 per cent fall is a warning sign but it is not severe enough to rule out a recovery.  Australia has a very big stake in what takes place in China.  Our resource shares are very much linked to China.

So what the markets are telling us is that while our high yielding shares may do well … our mining shares may not.

Important Information:  The information in this document is of a general nature only. Before you make an investment decision you should assess for yourself or obtain professional advice on whether the information is appropriate for your particular investment objectives, financial situation and particular needs.

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