Taehyung Park, Shinhan Asset CIO: "The Least Attractive Cash"

Investment Strategies in an Era of Low Short-Term Interest Rates

Taehyung Park, Chief Investment Officer at Shinhan Asset Management

[Asia Economy Reporter Junho Hwang] "At this point in time, the least attractive asset is cash."

Park Tae-hyung, Chief Investment Officer (CIO) of Shinhan Asset Management, summarized the current market, where low short-term interest rates are expected to continue, in his ‘CIO Weekly Letter’ on the 5th.

When low interest rates persist, a strategy emerges in the bond market to sell short-term bonds and buy long-term bonds. He explained, "Considering inflation, we will wait until long-term interest rates stabilize, but when the time comes that the income from the spread between long- and short-term interest rates outweighs the price loss risk caused by rising long-term rates, we start purchasing long-term bonds."

The enthusiasm in the stock market also intensifies. Park CIO said, "Margin trading, where funds are borrowed short-term to invest in stocks, increases," adding, "In the case of leveraged ETFs, costs decrease and performance improves when short-term interest rates are low, so they receive considerable benefits." The structured products market is similar. He said, "When the long- and short-term spread is high, deal arbitrage increases, leading to a large issuance of structured products and growing demand."

For these reasons, financial companies experience a boom. This is because they can sell a variety of products. Park CIO analyzed, "This is also why financial stocks have been performing well recently in the stock market."

Park CIO expects the era of low short-term interest rates to continue. He said, "Considering recent remarks by Jerome Powell, Chairman of the Federal Reserve (Fed), it seems that low short-term interest rates will remain unchanged in the market for the time being." He added, "The probability of central banks raising policy rates over the next 1 to 2 years is almost zero," diagnosing, "Inflation indices may approach 3%, but the economy has not sufficiently recovered, and the unemployment rate is far from returning to pre-COVID-19 levels." Accordingly, he urged, "Investors should hold sufficient financial assets and also adopt appropriate hedging strategies against inflation."

This content was produced with the assistance of AI translation services.