Negative interest rates effect on equities

[Frankieplus]

Hello everyone,

I've been reading about Trumps push for negative interest rates so I started to research this.

I came across conflicting views all a bit too hard for me to understand. So I thought I'd ask in here in case someone knows the answer.

If by some chance, Australia goes into negative rates how would this affect our equities market? I do know that if rates go down, stocks go up. But negative rates turns everything upside down in a way. Things kind of change I think.

What if America went into negative and we didn't, then how would the equities market be affected?

I know it affects the bond market and can understand this. But how about stocks.

Here is a short video I watched - It is suppose to be clear, only 8 minutes and easy to understand except it just went over my head a bit -

https://bit.ly/3b62BBz

-Frank

 

[Zaxon]

All other things being equal, the following happens. Banks can lend just fine. They'll get their money at, say -2%, and lend it out to you at 1%. So a negative interest rate for the bank, not a negative interest rate for the mortgage holder.

Banks start to charge savers to leave cash in their bank accounts. This incentivizes savers to move to risk in order to get a return. Hence bonds (prices) and stocks go up.

So, positive for stocks. But the "other shoe" is that negative interest rates occur during a financial crisis. In which case, stocks are likely to perform poorly, since the economy is doing so poorly.

The equilibrium between those two driving forces, will determine what actually happens.

 

[Frankieplus]

So, positive for stocks. But the "other shoe" is that negative interest rates occur during a financial crisis. In which case, stocks are likely to perform poorly, since the economy is doing so poorly.

The equilibrium between those two driving forces, will determine what actually happens.

Hmm.. This seems to make sense, thanks.

I have been continuing to research this and also discovered that when interest rates are negative, consumers feel "that negative rates simply fuel fears among investors that something is deeply – and permanently - wrong"

-Frank

 

[CBerg]

I think it's all a bit too hard to put together a consistent theory tbh.
Rates have been negative in Europe for a while now, it might pay to find some European sources for investing?

 

[Frankieplus]

I think it's all a bit too hard to put together a consistent theory tbh.
Rates have been negative in Europe for a while now, it might pay to find some European sources for investing?

Well I just looked at the Japanese Index, Swiss, FTSE100 and DAX and they all seem healthy enough to look at. On the rise for quite some years it seems. Just a drop now cause of Virus.

I've almost been afraid to invest now cause I'm spooked into thinking that negative rates one day could see my stocks plummeting down. Can't win.


-Frank

 

[CBerg]

Forgot about Japan!

I think if negative rates were widely available for consumers & businesses it would probably cause more issues possibly but until then I'm not sure it has much effect. I'd think stocks are beneficiaries because in theory you want the business to grow to be profitable, with growth in the future too.

Faced with paying a bank to hold your cash or stocks of growing businesses I think I know which most people choose, I think it's what most people have chosen up until the last 3-4 weeks.