With the global trend of negative interest rates, negative interest rates are a concept that investors will have to get used to.

Enter the era of negative interest rates

Sweden starts negative interest rates; Denmark adopted negative interest rates in 2010; In June 2014, the European Central Bank announced that it would lower the overnight deposit rate to -0.1%, officially opening the era of negative interest rates in the eurozone. In January 2016, Japan adopted a negative interest rate of -0.1% on new excess reserves, becoming the first country in Asia to do so.

In the context of slowing global economic growth and declining interest rate center, more and more economies have joined the ranks of negative interest rate policies. Today, the global trend toward negative interest rates has not abated, but has increased. At present, the eurozone, Switzerland, Denmark, Sweden and Japan and other countries or regions have basically negative interest rates.

Negative interest rates were introduced mainly to fight inflation and stimulate the economy. In general, negative interest rates can be divided into the following three types:

Negative policy rate: means that financial institutions (such as commercial banks) deposit with the central bank at a negative interest rate.

Negative deposit and loan rates: When savers pay negative interest on their deposits or loans at the bank, which means that you deposit less and less money in the bank.

Negative bond yield: A negative bond yield. This is happening a lot in Europe, such as Switzerland, Germany, Denmark, their national debt...

The negative interest rate policy has led to the rapid growth of the global negative interest rate bond scale

With the implementation and promotion of negative interest rate policy, negative interest rate is gradually transmitted to the bond market, driving the rapid growth of the global negative interest rate bond scale.

In early October, the ECB announced a 10 basis point cut in its deposit rate to -0.5 per cent. Germany issued a 30-year bond with a yield of -0.11%. As of the end of October 2019, the global negative interest rate bond scale has exceeded $20 trillion, accounting for more than 30% of the global bond market scale, a record high.

Some people may not understand why negative interest rate bonds are so large. Isn't it profitable? There's a misconception here that just because the coupon rate is negative doesn't mean you can't make money buying the bond. Because in addition to the "coupon income", there are "capital gains income". The so-called "capital gains gain" is essentially the income from buying and selling bonds, which have no income, but can also make a profit if the bonds can be sold at a high price.

How should we invest in an environment of negative interest rates?

Although China will not have nominal zero or even negative interest rates in the short term, in the medium and long term, it is entirely possible, and this is the reality we have to face. The era of negative interest rates does not mean that there is no money to be made, but the concept and model of making money have changed. As the economy enters a new normal and the era of quick money is over, learning how to preserve hard-earned wealth is all the more important.

I. Gold

Negative interest rates make wealth face the risk of shrinking, and gold has a certain hedge value, you can properly allocate some gold to reduce asset risks.

In fact, "interest rates and gold prices move opposite" in the era of global economy has become a "stereotype", and the root cause of this wave of "negative interest rates" trend is the weakness of the global economy, in this case more "hedge funds" into precious metals and its derivatives market has become inevitable.

Second, safe haven currency

Another viable option is a "safe haven" currency, which maximizes the risk of devaluation. In the era of negative interest rates, due to the disguised depreciation of deposits, people are forced to spend money, so that a large number of assets into the investment sector. In investment markets, it is smart to pick a currency that is relatively stable and not susceptible to external fundamentals, such as the global safe-haven dollar, yen or Swiss franc. History has proved that when the market personally experiences great turmoil, the elements of systemic risk increase, and the hedge currency is the other half of investors' main concern and purchase.

The safe-haven nature of the dollar is underpinned by the strength of the US economy and the creditworthiness of its Treasury bonds; The Japanese yen and Swiss franc, due to the long-term implementation of zero interest rate (including negative interest rate) policy, there is a huge spread between the Japanese yen, Swiss franc and other currencies, so many speculators like to borrow a lot of yen to buy other high-yield assets, becoming the financing currency of carry transactions.

Iii. National Debt

A third of bonds traded globally have negative interest rates, according to JP Morgan. Bond yields have been falling as investors have flocked to safe-haven assets amid concerns about slowing global growth and trade disputes. This reflects investors' worries about the future and aversion to risk. Therefore, Treasury bonds or trading investments are promising, especially those of developed countries and interest rate bonds.

4. Stocks

In the case of Japan, with the introduction of low or even zero interest rates, Japanese investors have become increasingly interested in investing in equities, because the dividend yield in Japan has become relatively higher than the yield on Japanese bonds. The increased focus on cash flow returns should lead to long-term changes in portfolio composition, with an increased emphasis on equity markets outside their home countries.

If today's Japan is indicative of the future evolution of debt and demographics in many countries, then in the era of negative bond yields that investors will face in the future, it is imperative to invest more in the stock market.

To sum up, even if we enter the era of negative interest rates, there are investment opportunities in the stock market, bond market, foreign exchange market and gold.