Interest rates and portfolios...can anyone plz explain this?
"higher global interest
rates will push up the cost of servicing argentina’s floating-rate external debt,
which includes much of its debt with multilaterals. longer-term rates are likely
to rise in response to short-term rate increases, and this will probably reduce
portfolio flows to emerging markets, including argentina."
explain the second sentence and its relation to future stock prices in argentina. thanks in advance!
Answer
Think of the global investors, flush with cash and looking for a nice
return. to the extent that interest rates on bonds are higher, then this makes them more attractive, and with each increase in long-term rates, it makes it less attractive to invest in equities, even though the overall return from equities usually outstrips bonds.
