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What does Bank of England base rate cut mean for expats?


DUBAI, Aug 11: The Bank of England has cut the base rate for the first time in over seven years, reducing it from 0.5 percent to a historic low of 0.25 percent. Consequently, this means a big impact for savers including the retirement plans of millions of GCC expats. “The base rate is the Bank of England’s official lending rate which influences what borrowers pay and savers earn. It has already been painfully low for many years but this means even more increased pressure on savings accounts, plus pension funds could be hit”, comments Siddarth Bhatia, Chief Investment Officer at Guardian Wealth Management.

Therefore, expats are having to explore different ways to invest their hard-earned savings to be able to achieve the returns they need for the perfect retirement. But how exactly can expats ride the cut and increase the performance of their savings? “Although bad for cash savings, low interest rates tend to mean good news for stock markets, which is why we always highlight the importance of diversifying investments.

Although recent events such as Brexit have made market investors cautious, asset prices (both stocks and bonds) have been in a bull market (rising) for the past seven years”, continues Bhatia. Part of the reason for stock markets being at an all-time high is due to Central Banks across the developed market supporting growth with lowered interest rates. When interest rates are low, the discount rate used to value stocks also gets lowered down, thus increasing stock market valuations.

“While there are lots of bearish (negative) views around, the truth is that the US economy is still chugging along and in turn dragging the rest of the world higher up. Commodity prices, especially energy sectors have seen bottoms (the lowest price reached), thus emerging market indices also have bottomed out for now”.

Therefore, this is good news for investors as it means a potential upwards trend could be imminent hence a great time to snap up these shares. Another tailwind for the bond market is that inflation has been non-existent, thus supporting bond prices. “As long as interest rates stay low, there is more upside to the stock markets whilst bond markets, although expensive, will stay steady as long as Central Banks are dovish around the world”, concludes Bhatia.

Guardian Wealth Management’s core fund offering — the Smartfund Protected — is fully invested and intends to ride this rally further. The fund itself has a downside floor at 80 percent of NAV, which means clients can never lose more than 20 percent of their original investment. For more information and advice on investments visit www.guardianwealthmanagement. com.

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