Impact of interest rates on Singapore’s stock market
Low stock prices
Interest rates are affecting by the market and are not control by the Monetary Authority of Singapore. When there is an increase in interest rates, the stock prices come down hence decreasing investment rates because most investors are risk-averse and they fear that money is lost when investing in the stock exchange. Over the years studies have proved that there is an excellent correlation between the United States stock markets and Singapore’s stock market such that when the Federal Reserve increases interest rates stocks rose and this was the same as Singapore.
Encourages investments
Lower interest rates decrease the stock prices making it very favourable for investors to invest and therefore growing the country’s economy. They also make it affordable for individuals and institutions to borrow because they will not be charge high interest. Financial institutions such as banks make lending more accessible because borrowers can borrow at a low interest rate thereby making them an intermediary between the surplus and the deficit units.
Weak currency
This is one of the major factors which are affecting Singapore’s stock markets. If there is an increase in the interest rates, this increases the prices of stocks. Therefore, if an investor has a lot of funds to invest, he or she will not end up getting the value for money when he or she buys shares. However, this risk can mitigate by channelling the funds elsewhere, that is the United States of America or any other country where stock prices are high, and there is value for money. As a result, the home currency which is Singapore’s currency weakens against the American currency. And this has happened in the recent past, and it is commonly known as a taper tantrum.
Increase in real estate investment trusts (REITs)
Interest rates have an inverse relationship with real estate investment trusts and vice versa. When there is an increase in interest rates, REITs and very profitable to invest and also many investors are discouraged to acquire them due to their very high prices. They are very profitable because once bought; they can be dispose at a very great value thus making a huge profit margin which is advisable for an investor. In this case, interest rates are considering to be very profitable for any would-be buyer.
Interest rates have both positive and adverse effects. However, low-interest rates have be like to have the affect Singapore’s positively. This is because they encourage lenders to borrow more from the surplus units which supports investments and later to the growth of the country’s economy.
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