14 July 2016

Lower Interest Rate... Who is the Winner and Loser ??? (July 2016)

Surprisingly, Bank Negara Malaysia cuts the benchmark Overnight Policy Rate (OPR) by 25 basis point to 3% today amid challenging global outlook mainly due to BREXIT. Coincidentally, BNM is making OPR changes in the month of July again. And, this is the first OPR changes under new BNM governor.

Okay. Let's us know who will be the winner and loser during lower interest rate environment.

  • Property Developer
    Cheaper cost of borrowing for new project financing or lower loan interest rate installment for borrowers. This is the direct beneficiary as we all know. And, it's crucial for the revival of property markets after a spell of subdue market.
  • REITs
    Real estate investment trusts benefits from lower interest rate being charged by banks. Thus, higher net rental yields and income distributions being anticipated.
  • Bond
    This is where conservative investors park their money, after fixed deposit, which will have a lower rate after this. Bond prices will increase on spiking demand.
  • High dividend counters
    Same reason to bond, dividend based counters will perform better when money started to pour in searching for higher yield after FD and bond.
  • Any other business with debts... the more you have, the better !
    Anyway, this is one of the reason why BNM lowering down the interest rate, that is to spur business activities via cheaper funding costs.

  • Banks
    Obviously, the profit margin of banks will be squeeze further. To make thing worse, depositors tend to pull out money to search for higher yield. Low capital adequancy ratio problem soon.
  • Malaysian Ringgit
    Lower interest rate paints a gloomy outlook on local economy. As a result, local currency will weaken and this will put more pressure to MYR after regaining some of the losses from last year plummeting performance.
What kind of counters should we look at ?
Tambun Indah, EcoWorld, HuaYang, Mah Sing, all the REITs, all local bonds...


  1. USD/MYR now depreciate after the rate cut....3.9500


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