Asset revaluation under the changing global interest rate cycle: a financial response for ordinary people

Over the past decade, the world experienced a rare low interest rate environment, with zero or even negative interest rates persisting for a long period of time, and the prices of various types of assets then rose across the board. However, since 2022, the world's major economies have entered a cycle of interest rate hikes, the cost of capital has risen, dollar liquidity has tightened, bond yields have rallied, and the financial market has shown obvious structural changes. This reversal of the interest rate cycle has not only changed the asset allocation logic of institutions, but also profoundly affected the wealth management strategies of ordinary people.

As the “anchor” of the modern financial system, rising or falling interest rates not only determine the cost of borrowing, but also the pricing structure of real estate, stocks, bonds, consumption and other areas. Understanding the interest rate cycle is actually understanding the underlying law that affects changes in wealth.

I. The interest rate cycle is reshaping the global asset landscape

1. Bonds back to center stage

In times of low interest rates, bond yields are compressed and unattractive. But as interest rates rise:

• Higher coupon returns on bonds

• More attractive risk-return structure

• Institutional funds return to bond assets

This means that bonds will rise further in global allocations in the coming period, becoming an important tool for many institutions looking for solid returns.

2. Real estate faces value rebalancing

Real estate prices are extremely sensitive to interest rates. An interest rate hike means:

• Rising mortgage costs

• Declining return on investment

• Increased holding pressure

Several cities around the world (e.g., Vancouver, Sydney, San Francisco) have seen price adjustments. In a tightening cycle, the long-term value of real estate still depends on population flows, urban resources and industrial structure, but the short-term high-leverage model is being tested.

3. Equity markets enter a “profit-driven” phase

Stock market rallies in the era of low interest rates tended to rely on liquidity, and after interest rates moved higher:

• Valuation pivot down

• Funds are more concerned about the real profitability of companies

• Pressure mounts on highly valued growth stocks

• Value stocks and companies with stable earnings are more favored by institutions

This means that structural differentiation in the stock market will become more pronounced in the future, with corporate competitiveness becoming the most important market pricing basis.

Second, why do rising interest rates affect everyone?

Interest rates determine almost all of life's key expenses. The average person faces several types of impacts from interest rate changes:

1. Rising costs of homeownership and lending

The difference in monthly payments for the same loan amount at different interest rates can be in the thousands of dollars. Higher interest rates mean:

• Home buying budgets need to be reassessed

• Declining liquidity in second-hand homes

• Highly Leveraged Families Under Increased Stress

Changes in interest rates directly determine the cost of a mortgage and are the most intuitively felt by many families.

2. Increased attractiveness of savings

As interest rates rise:

• Higher interest rates on demand and time deposits

• Savings products become more attractive

• Residents prefer lower risk, higher liquidity

For the less risk-averse, cash and low-risk assets have become “worth holding” again.

3. Changes in consumer behavior

Higher interest rates result:

• Higher revolving interest rates on credit cards

• Instalment Cost Elevation

• Decline in willingness to spend large amounts

At the macro level, rising interest rates usually dampen consumer demand, prompting households to plan their expenditures more carefully.

Third, how can the average person make sound choices in the interest rate cycle?

The interest rate cycle does not mean that complex macro models must be mastered for the average person, but rather that a clear and robust financial framework needs to be established.

1. Focus on your financial leverage, not market sentiment

Highly leveraged households are more at risk in a cycle of rising interest rates. A healthy structure usually includes:

• Stable cash flow

• Modest loans with clear repayment plans

• No over-reliance on future income for highly indebted consumption

Controlling leverage is the most effective way to protect against financial volatility.

2. Building a robust cash reserve

Setting aside an emergency reserve of at least 3-6 months“ worth of living expenses can help with unexpected expenses, fluctuations in income, and prevent you from being forced to ”sell at a low point" during a downturn in the market.

3. Focus more on long-term trends than on short-term fluctuations

Interest rate cycles typically last several years, and short-term market volatility tends to be more dramatic, but the long-term effects are more far-reaching. Without making speculative judgments, ordinary people should pay attention:

• Long-term economic structural change

• Direction of industrial upgrading

• Trends in urban population inflows

• Individual career and income growth potential

This is a more important direction than staring at short-term market fluctuations.

4. Enhancing financial thinking rather than chasing hot buttons

It is more important to understand the underlying financial logic than to chase short-term gains, for example:

• Why interest rates affect asset prices

• Why higher risk does not necessarily mean higher return

• Why cash flow is more critical than book value

Financial thinking is at the root of one's long-term wealth growth.

Fourth, in conclusion: the steady growth of wealth comes from long-term self-discipline

Interest rate cycles change constantly, but the basic principles of financial planning remain stable. No matter how the macro environment changes, the following three rules will always apply:

• You can only spend what you earn.

• Controlling risk

• continuous learning

The macro environment may affect asset prices, but it is the individual's choice, planning and execution that ultimately determines each family's financial situation. Understanding the interest rate cycle is the first step towards sound wealth management; adhering to self-discipline and learning is the key ability to traverse the cycle.

In an era of a shifting global financial landscape, sound financial decision-making is not just a competency, it's a way of life.