rate rise - impact on shares - macca's view

  1. Yak
    13,672 Posts.
    Equities strategy - How are stocks impacted by a
    rate rise?
    We have conducted an analysis of stocks that have
    responded to previous changes in Reserve Bank interest rate
    The start of a rising interest rate cycle causes a switch
    between growth stocks and interest rate sensitive stocks
    (growth stocks start to really perform well after rates start
    rising). There are usually some great trading opportunities at
    this time.
    Investors initially panic and sell domestic cyclical companies
    (Woolworths, Coles Myer, Wesfarmers, Coca-Cola Amatil,
    Lion Nathan) and banks. But these stocks bounce back over
    a three month period.
    There is no material impact on resources (which is not a
    surprise since they are more sensitive to global rather than
    domestic monetary conditions).
    Action and Recommendation:
    We have looked at the last three times that the Reserve Bank
    started raising rates - 17 August 1994, 3 November 1999,
    and 8 May 2002. We calculated the relative return of all
    stocks for the three months after that date.
    The key results are as follows:
    Biggest gainers on a three month view were some growth
    stocks: Telecom NZ, Tabcorp, Aristocrat, plus some others
    Newcrest, Woodside, Gunns , CSR, Publishing &
    Biggest losers were some interest rate sensitive stocks
    (Macquarie Bank, Macquarie Infrastructure Group), transport
    stocks (Brambles, Qantas) and some others (Lihir Gold,
    Sigma, ResMed, Smorgon Steel, Oilsearch).
    From a trading point perspective, there are some stocks that
    suffer a temporary set-back then recover. These tend to be
    some of the domestically-focussed companies (Coca-Cola
    Amatil, Woolworths, Coles Myer, Wesfarmers, Lion Nathan
    and stocks that used to be m ore cyclical such as Mayne
    Group and Southcorp.
    Banks also suffer initially and recover, but the effect is not as
    dramatic and the overall effect after three months is neutral.
    Over these past episodes National Australia Bank has done
    worst (down 1.6% on average over three months) while ANZ
    has done best (+3%).
    There is no significant impact for resources - each of the
    majors rose very slightly on average.
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