How to play out US rate decision

14 September,, Lagos – As we await the US rate decision from the Federal Reserve on Thursday, it is expected that the decision will have a subdued impact on the value of equities. Not withstanding, it is expected that some stock prices will react immensely to this, so investors would be positioning to exploit opportunities that arise on stocks that over react to the news.

Other industry experts have also aired their view as to how the rate decision could go down and how to play this out. The vice chairman and head of investment group at Ariel Investments, Charlie Bobrinskoy said in an interview with CNBC: “Because there’s so little liquidity in the market and the Volker rule, stocks are going to move more than they should.”

Bobrinskoy further stated that If the central bank announces a rate rise, he would watch out for attractive interest rate-sensitive stocks. For example, he pointed out that KKR usually gets hit when rates increase, even though it has no impact on the business.

In case of no-rate-hike in September?

On the other hand, if rates remain flat, investors can exploit the possibility of the drop that will occur in bank shares. He said he would target selling yield-sensitive stocks like real estate investment trusts, which Bobrinskoy believes are already overpriced and will likely trade up on any no-rate-hike news. Long-term bonds as well would make a good sell he noted.

Also, Rob Morgan, the chief investment officer at Sethi Financial Group, is of the opinion that rates will not be hiked in September. Because of that, he’s overweight stocks in cyclical sectors. Not withstanding, he has a game plan in place in the event rates rise next week.

“Historically, bull markets in equities continue well into a Fed rate hike campaign but it does make some sense to begin to get a little more defensive, take some equity chips off the table and shift into some defensive sectors,” he told “Power Lunch.”

Don’t get caught out of position!

James Liu, the global market strategist at JP Morgan Funds, said it’s important not to be caught out of position when the hike happens, especially since the Fed has said it wants to start raising rates this year.

“It’s the cyclical sectors that tend to do well when rates start to rise, especially if the U.S. economy stays intact despite all this global turmoil,” he explained earlier on Friday.

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