Low interest rate carnage

Low interest rates are exacerbating the gap between the rich and poor, according to Australian equities manager, DNR Capital.

DNR capital chief investment officer, Jamie Nicol, said low interest rates lifted asset prices and companies tended to return cash to shareholders via dividends and buy backs, instead of reinvesting the capital back into the business.

Nicol said rising interest rates would benefit investors and the market had already started to anticipate such rate rises.

Equities were beginning to see a rotation from defensive yielding companies toward lagging financials and resources, so investors stood to benefit from higher interest rates, he said.

The International Monetary Fund (IMF) was expecting global growth to be around 3.3 per cent while the developed market was tipped to be more subdued. Nonetheless, bond yields were at the bottom end of their yield cycles, global interest rates were at multi-year lows and the bond market was overcrowded, Nicol said.

"Bond rates have been a little erratic over the past month. They have been reacting to expectations of a US rate rise and responding to comments from various Federal Reserve officials", he said.

Low bond yields were causing bubbles in the valuation of assets like commercial real estate and infrastructure, which might also cause instability in the future, he said.