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Foreign Central Banks Cut Rates: How Can Investors Play the Low Rate Field?

Christopher Vargas

Central Banks in New Zealand, India, and Thailand all made headlines today by announcing larger than expected rate cuts. The news comes as the U.S. Federal Reserve elected to cut rates by 25 basis points just a week earlier. The moves made by the three countries furthers the global trend of monetary easing as global economic uncertainty looms over international markets. The easing comes on the back of the escalation of the trade war between the United States and China after president Trump announced a 10% tariff would be imposed on an additional $300 billion in Chinese imports. The sentiment of uncertainty also sent bond yields to record lows.

India, New Zealand, and Thailand Cut More Than Expected

The Reserve Bank of India cut rates by 35 basis points to 5.4% for a fourth straight meeting this year. Most economists expected the central bank to cut rates by 25 basis points, but the bigger than expected cut sent the lending rate to a nine-year low. India was the world’s fastest growing economy last year but this year it looks like it might be handing that title back over to China. In Q1 2019, India’s GDP slowed down to 5.8%, trailing behind China’s 6.4% expansion. India’s three main economic generators—corporate spending, government expenditures, and middle-class spending—have all seemed to have steadied.

The Reserve Bank of New Zealand stunned markets with a 50-basis point cut, twice the expected level. This massive cut sent the country’s official cash rate to an all-time low of 1%. Traders ramped up bets on Australia’s central bank cutting rates in September as a result of New Zealand’s monetary easing. The cuts made in New Zealand and elsewhere came in a week filled with uncertainty as China let the yuan depreciate after the U.S. hiked tariffs.

In Southeast Asia, the Bank of Thailand also lowered its benchmark interest rate to combat the sluggish economic outlook and stimulate inflation. The Bank of Thailand chose to cut their interest rates by 25 basis points for the first time since 2015. Most economists expected Thailand to hold steady on rate cuts but escalating trade tensions have weighed on export-dependent economies in Southeast Asia. Economists expect Thailand’s growth to remain under pressure due to weak exports and declining tourism. Low inflation, slowed growth, and hindered consumer confidence have all attributed to interest rate cuts on the global scale.

Bonds Rise and Stocks That Can Follow Suit

Global uncertainty about the international economic outlook prompted central banks to cut rates that in turn sent bonds to record highs. This sentiment has sent investors flocking towards government bonds and gold as safe havens. The move sent gold prices to soar to $1,500 for a troy ounce for the first time in six years. Bond yields, which move inversely to their prices, were sent tumbling worldwide. U.S. 10-year Treasury yields fell to their lowest since October 2016 on Wednesday. German bond yields also fell to record lows; the yield on German 10-year bonds dropped to -0.5890% and 30-year bonds fell to an all-time low of -0.117%.

The point of monetary easing is to stoke inflation by reinvigorating consumer confidence, prompting spending and growth. So, what stocks can capitalize on these low rate environments? Let’s take a look at a few stocks that can make sound investments in times of lower interest rates.

Unitil CorporationUTL is a utility company that serves New Hampshire, Massachusetts, and Maine with electricity and natural gas. Utility companies are non-cyclical; their top and bottom lines are typically not highly correlated with occurrences in larger markets. Their products and services are in constant demand despite market volatility. UTL is sitting at a Zacks Rank #1 (Strong Buy) and is up 14.3% year-to-date. Estimates are calling for a bottom-line hike of 9.46% and a top line jump of 4.3% to $131 million next quarter.

AngloGold Ashanti LimitedAU is a gold mining company that has been on a tear this year. The mining company is currently up 68.2% on the year, massively outpacing its respective industry. With investors flocking toward the commodity of gold, gold mining companies like AU can further benefit from the rampant increase in demand. AU is listed as a Zacks Rank #2 (Buy) with a Style Score of B in Value. It is currently and has historically traded at a discount relative to its industry which could provide investors with an opportunistic entry point. You can see here how AU has traded in comparison to the industry the past three years.

Brixmor Property GroupBRX is a real estate investment trust that focuses on the development of shopping centers. REITs depend heavily on debt-fueled financing to drive their business. REITs in turn can benefit greatly from low interest rate expenses on borrowed capital. In addition, REITs also pay out dividends that can further attract investors looking for returns in times such as these. BRX is listed as a Zacks Rank #2 (Buy) and has a dividend yield of over 6%. The company has had a sound year thus far, up 27.8% YTD and beat earnings estimates the past two quarters. Estimates are calling for the bottom line to jump 11.9% this quarter and for it to jump 20% in the next quarter.

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