Equities vs. rising interest rates: Gains exist

DNH Financial said yesterday that while investors may perceive rising domestic interest rates as stealing the appeal for equities, it does not expect this to happen in the short term given the relative asset allocation disconnect between equities and interest rates.

“We believe that the next few months will offer an attractive opportunity for risk savvy investors to be able to proactively position themselves to capitalise on the market notwithstanding the possibility of a further rise in interest rates which could dent the pace of corporate earnings growth for those companies that are highly leveraged,” DNH said.



“While the general lull in the market is certainly uninspiring, we believe that this is a temporary dislocation. We also believe that for international fund managers squaring off their books in other emerging markets, Sri Lanka offers a relatively attractive investment opportunity diversifying away from the general nervousness in the global markets,” the broker added.

Arrenga Capital advised investors not to get excited on the sudden rallies which are likely to be short lived amidst the rising interest rates.

“We believe value seekers should give priority to higher dividend yielding counters as the rising interest rates may dim the prospects of capital gains in the short term,” it added.