Macroscope | Why China is a better bet for investors, even as US Fed raises interest rates
- Given the high US inflation rate, whatever the Fed does in the coming months, the reality is that investors in US Treasuries will be earning a negative real return
- With China, however, investors can be sure that fiscal and monetary policy will remain stimulatory to support the economy
The Federal Reserve will raise interest rates, the only question being how far it will go as it seeks to curb US consumer price inflation. Higher nominal US interest rates will entice many investors but, from an overall investment perspective, China may still prove the more attractive proposition.
The yield on the benchmark 10-year Treasury was 1.93 per cent at last week’s close.
In China, where the official consumer price index rose by only 0.9 per cent in January on an annualised basis, down from 1.5 per cent in December, but the yield on the 10-year Chinese government bond was at 2.8 per cent at last Friday’s close, investors are still getting a positive inflation-adjusted return on their money.
Indeed, overseas investors continued to pile into China’s bond market in January.