There are ways for investors to cash in on an expected rise in interest rates, according to THE ANALYSTS on Taking Stock with Kalilah Reynolds. 

In August, the Bank of Jamaica (BOJ) signalled that it would start raising interest rates as early as this month, as it seeks to contain inflation. 

According to the Central Bank, significant increases in international commodity prices will cause inflation in Jamaica to temporarily go higher than six percent, which is the upper end of the bank’s target range.  The BOJ warns this could start as early as the September quarter. However, it anticipates that high inflation will not last for more than a year. 

Investment Research and Sovereign Risk Analyst at Jamaica Money Market Brokers (JMMB), Leovaughni Dillion, said any increase in the rate will likely have a negative impact on the economy.

He also questioned whether it was the right move for the Central Bank to raise rates, having admitted that the pandemic has led to transitory inflation as economies rebound.

Investment Research & Sovereign Risk Analyst at JMMB Group, Leovaughni Dillion

“If inflation was really coming from an overheating economy, then you could make an easier case for it, but in the case of even globally right now, most of the inflation seems to be transitory so that’s the reason for some push back there in terms of how the public and private sectors are doing,” he said.

From an investment perspective, Dillion said investors will have to analyse each company on the equities market on a case by case basis to determine which would be best to avoid or take advantage of when rates rise.

This, as some companies, including those with a low debt burden or selling food, are less sensitive to increases when compared to others like cars sales company, Jetcon Corporation, which he said may have to pass on that increase from the banks in their sales.

Meanwhile, he said investors with a bond portfolio can look to invest in more variable rate notes, which change depending on what’s happening. He said this meant instrument rates would reset when the BOJ raises its rates.

Additionally, he said bond holders can opt to invest in bonds with shorter duration or deploy a ladder strategy to split up investments, which would allow them to reinvest due notes at a higher rate.

Real estate and financial companies to benefit

In the meantime, Financial Coach, Founder and CEO of Profit Jumpstarter, Keisha Bailey said investors should be looking to take advantage of companies in the real estate and financial sectors as they will be the ones benefiting from higher interest rates.

Financial Coach, Founder and CEO of Profit Jumpstarter, Keisha Bailey.

“These companies that benefit from high interest rates are ones that you are going to want to go towards  because that’s what will give you what people call a hedge against inflation; it protects you there,” she said. 

“What you don’t want to be doing definitely is looking at your savings account because that would be taking a bigger hit in a higher interest rate environment because savings rates are much lower,” she added. 

She also cautioned investors about eyeing companies importing when interest rates rise as they would have already been impacted by high input costs resulting from global logistical challenges.

“You typically want to stay away from those companies that are impacted by high interest rates,” she said.

The Central Bank’s decision on interest rates should be released by the end of the month.

Catch The ANALYSTS in Taking Stock with Kalilah Reynolds. New episodes premiere Tuesdays at 8pm on YouTube and kalilahreynolds.com

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