chapter  8
18 Pages

Interest Rates and Country Allocation Strategies

ByLeila Heckman, Brian Gendreau

Global and international portfolio managers often take interest rates into consideration in deciding upon country allocations. Interest rates are commonly viewed as a measure of the stance of monetary policy or an indicator of future business conditions, with higher rates typically assumed to presage lower equity returns. In the financial press, the rela­ tionship between interest rate changes and equity market movements is often treated virtually as a truism, as is apparent in two recent statements made in daily market recaps on Bloomberg:

Philippine stocks rose after the central bank reduced a closely watched interest rate for the second time in two days. Hong Kong stocks fell for a second day, amid concern high interest rates will eat into property developers ’ and banks ’ earnings growth.