The United States Federal Reserve (FED) has put an end to an economic process and has decided to raise interest rates by 0,25%. After months of confusion, the US regulatory body has finally decided to raise the price of money. It is not a strong rise, much less spectacular, but it has a very important load of symbolism since a very long period of monetary stimuli has ended. Specifically, it had not done so for almost a decade, specifically in 2006, shortly before the serious economic crisis that has affected the main countries broke out.
The repercussions have gone far beyond its borders, as it is logical to understand, and there are innumerable users and investors who on this side of the Atlantic wonder how this momentous monetary measure is going to affect them. Especially in its relationship with the stock markets, but also its links with savings products.
Janet Yellen, president of the Federal Reserve has explained the introduction of monetary exchange by stating that "the recovery has come a long way, although it is not yet complete." A whole declaration of intent that indicates where the economy of the world's first potential is going to go. Although there is a no less important issue on the board, and that will affect the Europeans: ¿will the European Union follow the same path?
Monetary scenario in Europe
The road in the old continent, for the moment, is diametrically opposite to the American one. Monetary policy is totally expansionary, and is expected to continue for at least a few months. The reason is none other than the lack of consolidation of the community economy, which has led to the monetary stimuli continuing their course. Not in vain, for the next meeting in March, Mario Draghi, president of the European issuing bank, has already announced the introduction of new monetary stimuli.
Just remember that the price of money in the euro zone is practically non-existent, close to zero, as a consequence of the aforementioned economic strategy. And one of its main effects has had an impact on traditional savings products. Its profitability is below historical lows, with yields on term deposits around an annual average of 0,35%, and which contrast with those generated more generously some years ago. Percentages close to 5% could be seen, even higher in the most aggressive banking proposals.
On the contrary, applicants for loans or mortgages are the most favored by the application of monetary policy in the European Union. The interests of its products have fallen significantly in recent years, and where the mortgages generated from the banks are its best exponent. Not surprisingly, the European benchmark, Euribor, is at levels that are also unknown. The formalization of its operations, therefore, are benefited by this scenario of the community economy.
Impact on investors
In Europe there is no forecast that interest rates will increase, at least until the first signs of its economic recovery are given. And in this sense, the fall in the productive activity of China it plays against the change of trend in monetary policy. Since it could affect both consumption and inflation.
This scenario will have an impact on the equity markets. As a consequence of the rate hike in the United States, the most affected values of the Spanish stock market will be those that are related to raw materials and basic resources. Arcelor, Acerinox or Repsol will be some of the victims. But also others exposed to emerging economies, and especially those from Latin America. In this sense, Telefónica and some top-tier banks will undoubtedly be the most affected by this measure.
With regard to the winning side, there is no doubt that they will be well represented by the exporting companies, as in the specific case of Inditex. Another of the victorious horses will be the tourism companies (NH Hoteles, Sol Melia or Amadeus). And naturally the airlines - with IAG as the main flag bearer -, and whose actions will also be boosted by the drop in the price of crude. Being one of the most recommended options by stock market analysts.
What about the Spanish saver?
Another very different situation is the one that affects small Spanish savers. Will low returns on top savings products continue? Banks are often plagued by this question posed by their main customers. Especially the more conservative savers who have their savings stored in these products (time deposits, bank promissory notes, savings accounts or pension plans).
With regard to the effects of the rate hike on the other side of the Atlantic, the effects on the savings of Spanish bank users will be little less than appreciable. You will notice very little difference, no doubt. Not surprisingly, current accounts and term deposits will not be almost affected. Another very different thing would be for this measure to be applied in the euro zone. Then yes, the repercussion would be noticed quickly in all these financial products, with a rise in their yields.
Instead, the effects on small and medium-sized enterprises if they start to be substantiated. The rise in the price of money in the United States makes those whose activity is based on exports more competitive, as well as benefits those in the tourism sector. They will be the ones that try to make this measure profitable with greater opportunities in their businesses. And in any case, they will not be exempt from other links with other economic parameters, both national and outside our borders.
Is it time to invest in the stock market?
Faced with this new economic scenario, many small and medium investors are wondering if it might be a good time to start taking positions in the equity markets. In principle, it should be noted that upward movements in rates are not well received by investors. Of course not, quite the opposite. And it tends to generate downward movements in the stock markets, sometimes with very oversized reactions. Although some analysts consider that they are already discounted by the shares of the companies.
From this point of view, European markets are more valued than North American markets to take positions, especially in the medium and long term. With a stronger upside potential, although for the moment its trend is channeled under strong pressure in the selling stream. And that in the national benchmark index, it is leading him to test the psychological barrier of 8.000 points. In one of the worst months in recent years such as January.
In any case, it is not just a trend in the national stock market, but all the stock indices have been in negative territory during the first weeks of the year, some even with similar virulence. And even with excessively erratic movements, which prevent you from selecting the correct strategy to operate.
Ten tips for investing
This scenario, whose epicenter is the United States economy, should lead to a small change in strategy for retail investors. They must adapt their investment portfolios according to the monetary policies in the different economic areas of the planet, and as a consequence, follow a series of recommendations based on the following actions.
- Opt for European markets before the North Americans, or other secondary economies. They will be the ones that make the most of these movements, even with the structural problems in their economy, as can be seen today in their evolution.
- Get away, for the time being, from any position taking in emerging markets that they are the most affected by this type of expansionary monetary measures, and that may develop important corrections in the coming months. For now, this trend has already been felt at the beginning of this new year.
- Buy shares of securities benefited by this measure, to the detriment of companies linked to raw materials, or even energy. And where a correct selection of them will be the ideal passport to seek a better performance for the savings of families.
- Act with caution, given the possibility of strong volatility movements that make it very difficult to execute any strategy to operate in the financial markets.
- The protection of our heritage will be the common denominator of all your actionsAnd if it is necessary to rest in our relationships with equities, there will be no choice but to get it up and running quickly.
- Investors, as in your case, should look for products that are as safe as possible, which if possible guarantee financial contributions with a minimum return, and without expecting notable revaluations during the remainder of the year.
- There will be other more beneficial alternatives for your interests, and that they can come from absolute return investment funds, securities with high dividend yields, and even if it were to buy North American bonds.
- You should avoid contact with any toxic product, or at least that presents a strong exposure to risk. They are not the most recommended in the current economic scenario. Not in vain you can lose a very important part of your capital.
- Don't rush into decision making, and it is preferable that you meditate the order you are going to take. Any miscalculation can make you lose a lot of money, more than you can imagine. Do not forget.
- And finally, there will be no other solution to weather the monetary scenario than choose the most flexible models. They can adapt to all financial market conditions, both in expansive and recessive situations.