Recently, we can see that the central banks of developing countries continue to increase interest rates. There are also similar signals from the central banks of developed countries. So, what awaits us in a world where interest rates are increasing? Which investment instruments will be more profitable in this period and what strategy should be followed? Here, we will seek answers to these questions.
Investing in a world where interest rates are low and an expansionary policy is adopted is quite stress-free. However, the behavior of the markets has changed recently when interest rates have come to the fore. While developing countries continue to increase interest rates, important messages are coming from central banks of developed countries.
There is a rate hike expected by the FED in March. Not only that, but 7, according to some, and 4, according to others, interest rates are expected throughout 2022. Especially with the latest inflation data (7.5%), the probability of a 50 basis point increase in March rose above the 57% level. So, a sharp increase may be waiting for us in the first place.
On the other hand, there are harsh rhetoric on the side of the ECB (European Central Bank). Interest rate hikes are likely to begin this year. Especially with the latest statements, we observed a downward movement in the Japanese Yen/Euro parity. Thanks to the stronger Euro, the pair touched the orange support level again.
Which Investment vehicles perform well?
As can be seen, there is a general strengthening in fiat currencies. This has a negative impact on financial markets. In particular, rising interest rates point to an economy that has lost its pace and is slowing down. For this reason, stocks diverge negatively. Because a slowing economy means low profitability for companies.
On the other hand, rising interest rates create opportunity costs for other investment instruments. Because the interest rates are known as risk-free returns, they rival other investment instruments. This is a negative situation for other investment vehicles.
However, with the increase in interest rates, the main risk for the markets is low inflation. Because interest rates have an inflation-repressing structure. And let’s consider that inflation is the main factor that drives you to financial markets. For example, there is high inflation in Turkey. According to TUIK data, annual inflation is around 48%, and according to ENAG, there is an annual inflation of over 100%. In such a situation, people are open to taking big risks in financial markets to protect their savings.
US Indices
This is the downside of rising interest rates. In particular, there has been no recent upward movement in US indices. There is a horizontal movement. There is a serious loss of momentum. This indicates that a new downward trend may occur. So, I have a decrease expectation in 2022. Indices are still close to the top and there has been no market crash. So, I expect a sharp decline from the top to the bottom. However, the decline here is not likely to continue throughout 2022. So, in 2022, I expect drastic decreases from time to time. Well, that poses a serious risk.
This is also negative for cryptocurrencies, especially Bitcoin. Increasing interest rates will also negatively affect crypto assets, which are risky assets. In particular, considering the correlation with US indices, 2022 seems to be negative for crypto assets. And the sharp drops I mentioned above will also affect the crypto market. For this reason, it should be chased more in-and-out instead of constantly being in the goods. Because if you catch such sharp drops in altcoins, it is possible to write a loss of more than 50%.
Any new analysis? I will share my expectations for 2022. I will talk about which will be my favorite investment tool. come? What are you saying? $btc $eth $island
— Furkan Bozkurt (@BzkrtFrkn) February 14, 2022
I expect more horizontal movements from crypto assets in 2022. However, since the crypto market is very volatile, it still promises serious profitability. However, we can see that Bitcoin does not constitute a hedge for inflation. This matter is important. Because, no matter how much central banks increase interest rates, it will take time for their policies to affect the economy. This means high inflation as well as high interest rates for 2022.
The reason why we still do not see serious collapses in the markets while the interest rates are on the agenda is the strong inflation. Strong inflation will ease the markets for a while in 2022. However, towards the middle of this year, we can observe hard sales in the markets.
Strong Gold in 2022!
The trick is this: If US inflation continues to rise through 2022 or remains high even if it doesn’t, we can see a strong stance on the gold side. Because I think the positions on the gold side will be protected for high inflation. And of course, US inflation will remain high throughout 2022 in my opinion and will cease to be a risk in 2023. For this reason, we can see the levels of $ 2,000 on the ounce side of gold again for 2022.
In particular, the recent US inflation and Russia-Ukraine tensions caused the triangle stuck on the gold side to be broken. A positive breakout seems to have started an upside move. On the gram side, the CBRT’s continuation of interest rate cuts after April may strengthen the upward movement. Therefore, gold still looks positive for 2022.
The year 2022 will be a year in which interest increases will come one after another. Therefore, the markets will also be in a volatile state. In other words, we may have to stop and go in traffic instead of constantly pressing the gas on an empty road. As I always say, it is very important to wait for the right times and avoid damage as much as possible, instead of being constantly on the property.
Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.