Since 2019, affected by events such as COVID-19 and the tense situation in Russia and Ukraine, the world economy has been in a continuous downturn, the unemployment rate has risen, and inflation has soared. For this reason, countries have introduced a series of policies to try to save the economy.

Under the leadership of the Federal Reserve, developed countries have been working together to raise interest rates as central banks have responded to the peak inflation. For example, on September 22, the Bank of England announced an interest rate hike of 50 benchmark points, raising the benchmark interest rate to 2.25% in response to rising inflation expectations. This is the seventh interest rate increase in the UK since December last year. The Federal Reserve completed its third aggressive interest rate hike of 75 basis points on September 21. The 10-year interest rate on US government debt soared from 1.65% to a peak of 3.94% on September 27. That forced U.S. mortgage rates up more than 6% and led to a sharp decline in the housing market. German borrowing costs for ten-year bunds have still risen from negative levels at the start of the year to a recent peak of 2.2%. With inflation in Germany running at more than 10%, that still looks low, suggesting that more rate rises are on the way.

Both the Federal Reserve and the European Central Bank made it clear in their public statements that they hoped to raise interest rates further. This situation makes me feel that we are entering a period of a sharp slowdown in economic activities, which may cause some countries’ economies to begin to decline. The increase of interest rate by the Federal Reserve will promote the return of funds to the United States, which may lead to a large number of divestments, thus affecting the asset layout of some enterprises. This makes me deeply worried about some enterprises because it is becoming more and more difficult to invest in such a background. According to modern portfolio theory, we can know that risk is divided into systematic and unsystematic. At present, we are mainly faced with systematic risks, which will affect all investments, and we cannot disperse them. No one can change the current sluggish economic situation, let alone avoid its impact. Therefore, in the current situation, the company must maintain a cautious attitude if it wants to invest.

Therefore, as for enterprises, my opinion is that first of all, enterprises should reduce internal financing costs as much as possible and reduce their expansion plans as much as possible when deciding on an investment. To ensure the enterprise’s production and operating costs and profitability. Second, when we do investment analysis, we need to focus more on the cost of debt issuance and exchange rate risk. If US dollar bonds are issued overseas, and the currency of the expected income is not the US dollar, the debt repayment may face a greater exchange rate risk. In addition, for investments with large volatility, we should also follow the principle of “Don’t put all your eggs in one basket” to minimize nonsystematic risks. Finally, my view on some emerging market investments is to focus on their debt service and other risk factors. Some emerging markets and resource countries face increased systemic risks because of the possibility of new capital outflows due to higher US dollar rates. Some emerging economies may face challenges such as sharp capital outflows, stock market declines, currency depreciation, and increasing pressure to repay foreign debts. This can greatly affect our investment decisions and returns.