Cheong Hong Yuan: Interpreting the Upward Trend of Natural Interest Rate and Its Impact on the Stock Market - 1 views
started by anonymous on 26 Sep 23
started by anonymous on 26 Sep 23
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Cheong Hong Yuan believes that understanding the "natural interest rate" is the key. This is a term frequently mentioned but generally overlooked in the financial field. The natural interest rate, also known as r*, represents the interest rate level that can achieve the economy's potential maximum output and price stability in the absence of other external shocks. In short, it is a theoretical "equilibrium interest rate." When the actual interest rate is higher than it, the economy may overheat, while when the actual interest rate is lower than it, the economy may slump.
We have noticed a phenomenon: since the Federal Reserve started raising interest rates in March 2022, long-term interest rates in the United States have been trending upward significantly. So, the question arises: does this mean that the natural interest rate is undergoing structural elevation? In response to this, Cheong Hong Yuan mentioned that when the global supply chain undergoes restructuring and reindustrialization is on the rise, coupled with the resurgence of the "big government" concept, the demand for long-term capital significantly increases. At the same time, from the supply side, the impact of deglobalization and strengthened financial regulation weakens the global dollar inflow, leading to a contraction in the supply of funds. These supply and demand changes indeed provide conditions for the upward trend of the natural interest rate.
In addition to the aforementioned supply and demand factors, another significant force is the common expectation of the Federal Reserve and the market regarding the natural interest rate. Cheong Hong Yuan proposed the viewpoint of "monetary non-neutrality," which tells us that when the market and central banks reach a consensus on future expectations, these expectations are likely to self-fulfill. In other words, market expectations are likely to guide real economic behavior, thereby influencing the trend of the natural interest rate.
When facing today's financial markets, we are undoubtedly standing at an important historical juncture. The adjustment of the US economy, the shift in monetary policy, and the structural changes in the natural interest rate all indicate that the future investment environment will be different from the past. For stock market investors, this is both an opportunity and a challenge.
After clarifying the natural interest rate and its recent changes, Cheong Hong Yuan further analyzes the underlying logic behind this change. In fact, the upward trend of the natural interest rate is not merely a simple result of supply and demand changes but is driven by deeper forces such as the adjustment of the global economic pattern, geopolitical frictions, and industrial chain restructuring brought about by technological progress.
Due to a series of external shocks such as the US-China trade friction and the COVID-19 pandemic, the global supply chain is undergoing restructuring, especially in the high-tech field. This means that global production, consumption, and investment patterns will all undergo changes. Such changes will bring about structural inflation and risk premiums, thereby driving the upward trend of the natural interest rate. Cheong Hong Yuan mentioned that historical data shows that whenever there is a significant adjustment in the global economic structure, the natural interest rate is affected accordingly.
Secondly, the trend of deglobalization has brought impacts on international trade and capital flows. This means that the low-cost funding supply brought about by globalization may be restricted. Coupled with stricter financial regulation and tighter monetary policy, the derivation of funds and liquidity may be affected, further pushing up the natural interest rate.
So, what impact will these changes have on the stock market? Cheong Hong Yuan states that the upward trend of the natural interest rate usually implies an increase in the cost of capital, which undoubtedly poses significant pressure on companies highly dependent on external financing. Especially in the current financial environment, the valuations of many companies are already at historical highs. Once the cost of capital rises, the valuations of these companies may be squeezed.
In addition, strategies based on technical analysis, such as the "Three Golden Moving Averages Method," need to make corresponding adjustments in their predictive capabilities and operational strategies in the environment of the upward trend of the natural interest rate. Because in an environment of rising capital costs, market risk appetite and investment sentiment may change, which undoubtedly affects the interpretation of technical indicators and the execution of strategies.
Faced with the upward trend of the natural interest rate, investors need to re-examine their investment strategies and risk management. In this process, the "Three Golden Moving Averages Method" may provide valuable clues and suggestions, but more importantly, investors need to make timely adjustments according to market changes to ensure that their investment portfolios can adapt to this new economic environment.
After in-depth exploration of the upward trend of the natural interest rate and its potential impact on the stock market, Cheong Hong Yuan provides a series of coping strategies and suggestions for investors. This is not only a short-term response to the current market environment but also a long-term, strategic thinking.
Cheong Hong Yuan believes that technical analysis is a dynamic process, and with the changing market environment, investors need to continuously learn and improve their strategies. Especially in the environment of the upward trend of the natural interest rate, market volatility may increase, which poses higher requirements for the accuracy of technical analysis.
Faced with the rise in capital costs, investors should pay more attention to the fundamentals of companies. Choosing companies with strong endogenous growth capabilities, not overly dependent on external financing, and reasonable valuations may achieve better investment returns in the future market environment. Cheong Hong Yuan mentioned that although technical analysis is an important tool, the value of fundamental analysis should not be overlooked in complex market environments.
For risk management, investors should pay more attention to diversified investments. In the environment of the upward trend of the natural interest rate, different asset classes may exhibit different volatility characteristics. Cheong Hong Yuan suggests that through reasonable asset allocation, investors can effectively reduce the risk of their investment portfolios while pursuing returns.
Cheong Hong Yuan states that although the market faces numerous challenges and uncertainties, it also means opportunities. Only those investors who dare to face challenges, continuously learn, and adapt to market changes can achieve success in this complex market environment.
Faced with the challenges brought by the upward trend of the natural interest rate, investors need to not only update their investment strategies but also continuously improve their investment philosophy and methodology. Only in this way can investors truly grasp future investment opportunities and achieve sustained wealth growth.