What investors should be doing as strong inflation pressures set to trigger interest rate rises - experts

By Nona Pelletier of RNZ

Investors are set to face new challenges as strong inflation pressures look set to trigger interest rate rises.

It has been seven years since the Reserve Bank last raised its official cash rate, currently sitting at 0.25 percent, but higher rates are here and on the global horizon.

The big banks had already lifted deposit and lending rates in anticipation of a RBNZ move, possibly as soon as next month.

Financial Services Council chief executive Richard Klipin said prudent investors should review their investments and check in with their financial advisers.

He said this was particularly so for a growing number of younger investors who had become enthusiastic users of apps such as Sharesies and Hatch, which offer an opportunity to buy smaller stakes and big companies at low entry prices.

"I think that's always on topic for investors, absolutely. Markets are changing all the time. Contexts are changing all the time and the stop in the fall of interest rates and probably plateauing out before they increase so yeah ... investors are making wise decisions all the time," Klipin said.

"We're in a pretty delicate position here in New Zealand but also globally in terms of the outlook."

Craig's Investment Partners head of wealth research Mark Lister said higher interest rates would favour more conservative investors who had taken riskier positions in the past few years in pursuit of reasonable returns.

The changes will favour companies that have a track record of good management and strong finances, he said.

"We are at a bit of a turning point for financial markets, and that's really been driven by the recovery after last year's pandemic, and what will come along with that economic recovery is higher inflation, which we're seeing right across the world, including here in New Zealand, and also a gradual move towards interest rates that look like what we would expect in more normal times," he said.

Investors should plan for change and consider which businesses will do well in periods of inflation and growth, such as banks, Lister said.

It was important to consider the underlying fundamentals of an investment opportunity, he said.

"You know, if you're a business and your costs are going up because inflation is higher. Can you raise your prices without losing your customers to maintain your margins and your profitability.

"It doesn't mean we give up on our safe steady performance."

It was a good time for investors to talk to their financial advisor, or at least take a stock take, as the investment landscape could look very different over the next two to four years, Lister said.