MARKETSVisualized: Real Interest Rates by CountryPublished 3 weeks ago on May 4, 2023
By Bruno Venditti
Graphics/Design:
Sam Parker
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Visualized: Real Interest Rates by Country
Visualized: Real Interest Rates of Major World Economies
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Interest rates play a crucial role in the economy because they affect consumers, businesses, and investors alike.
They can have significant implications for people’s ability to access credit, manage debts, and buy more expensive goods such as cars and houses.
This graphic uses data from Infinity Asset Management to visualize the real interest rates (ex ante) of 40 major world economies, by subtracting projected inflation over the next 12 months from current nominal rates.
ℹ️ Ex ante is Latin for “before the event”, and in this case refers to the fact that this data uses projected inflation rates to calculate real interest rates.
Nominal Interest Rates vs. Real Interest Rates
Nominal interest rates refer to the rate at which money can be borrowed or lent at face value, without considering any other factors like inflation.
Meanwhile, the real interest rate is the nominal interest rate after taking into account inflation, reflecting the true cost of borrowing or lending. Real interest rates can fluctuate over time and are influenced by various factors such as inflation, central bank policies, and economic growth. They can also influence economic growth by affecting investment and consumption decisions.
According to the International Monetary Fund (IMF), since the mid-1980s, real interest rates across several advanced economies have declined steadily.
historical declining rates
As of March 2023, Brazil has the highest real interest rate among the 40 major economies shown in this dataset.
Below we look at Brazil’s situation, along with the data of the four other major economies with the highest real rates in the dataset:
Nominal Interest Rate Real Interest Rate
🇧🇷 Brazil 13.75% 6.94%
🇲🇽 Mexico 11.00% 6.05%
🇨🇱 Chile 11.25%
4.92%
🇵🇭 Philippines 6.00% 2.62%
🇮🇩 Indonesia 5.75% 2.45%
In general, countries with high interest rates offer investors higher yields on their investments but also come with higher risks due to volatile economies and political instability.
Below are the five countries in the dataset with the lowest real rates:
Nominal Interest Rate Real Interest Rate
🇦🇷 Argentina 78.00% -19.61%
🇳🇱 Netherlands 3.50% -7.42%
🇨🇿 Czech Republic 7.00% -7.17%
🇵🇱 Poland 6.75% -6.68%
🇧🇪 Belgium 3.50% -6.42%
Hyperinflation, as seen in Argentina, can lead to anomalies in both real and nominal rates, causing problems for the country’s broader economy and financial system.
As you can see above, with a 78% nominal interest rate, Argentina’s real interest rates remain the lowest on the planet due to a staggering annual inflation rate of over 100%.
Interest Rate Outlook
Increasing inflation and tighter monetary policy have resulted in rapid increases in nominal interest rates recently in many countries.
However, IMF analysis suggests that recent increases could be temporary.
Central banks in advanced economies are likely to ease monetary policy and bring interest rates back to pre-pandemic levels when inflation is brought under control, according to the fund.
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RELATED TOPICS:ArgentinaReal Interest RateInflationInterest RatesNominal
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TECHNOLOGYJust 20 Stocks Have Driven S&P 500 Returns So Far in 2023
From Apple to NVIDIA, megacap stocks are fueling S&P 500 returns. The majority of these firms are also investing heavily in AI.
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Published 3 days ago on May 24, 2023
By
Dorothy Neufeld
Just 20 Stocks Have Driven Most of S&P 500 Returns
Just 20 firms—mainly AI-related stocks—are propping up the S&P 500 and driving it into positive territory, signaling growing risk in the market.
The above graphic from Truman Du shows which stocks are making up the vast majority of S&P 500 returns amid AI market euphoria and broader market headwinds.
Big Tech Stock Rally
Tech and AI stocks have soared as ChatGPT became a household name in 2023.
The below table shows data from last month, highlighting that just a small collection of companies drove most of the action on the U.S. benchmark index.
Company Rank Name Contribution to S&P 500 Return Average Weight
1 Apple 1.49% 6.61%
2 Microsoft 1.15% 5.72%
3 NVIDIA 1.00% 1.62%
4 Meta 0.66% 1.15%
5 Amazon 0.51% 2.56%
6 Tesla 0.50% 1.39%
7 Alphabet (Class A Shares) 0.34% 1.72%
8 Alphabet (Class C Shares) 0.31% 1.53%
9 Salesforce 0.19% 0.51%
10 Advanced Micro Devices 0.16% 0.39%
11 General Electric 0.10% 0.28%
12 Visa 0.10% 1.08%
13 Broadcom 0.09% 0.73%
14 Intel 0.09% 0.35%
15 Walt Disney 0.08% 0.55%
16 Booking Holdings 0.07% 0.28%
17 Exxon Mobil 0.06% 1.37%
18 Netflix 0.06% 0.44%
19 Oracle 0.06% 0.40%
20 Adobe 0.06% 0.49%
Top 20 Companies 7.05% 29.17%
S&P 500* 7.55% 100.00%
*Based on the Vanguard S&P 500 ETF as of April 11, 2023. Source: Vanguard S&P500 ETF, Bloomberg.
Microsoft invested $10 billion into OpenAI, the creators of ChatGPT. It has also integrated generative AI into its search engine Bing. This large language model is designed specifically to make search capabilities faster, generate text, and perform other automations.
Also of interest is NVIDIA, which is the most valuable chipmaker in America. It sells $10,000 chips called A100s that allow machine learning models to run. These models perform multiple tasks simultaneously to develop neural networks and train AI systems, including OpenAI’s ChatGPT. Companies that are developing AI-related services, such as chatbots or image generation, may use up to thousands of these chips.
Despite being the world’s most valuable company and a key driver of returns, Apple is an outlier among tech giants with no major projects announced in AI (so far).
Implications of Market Divergence
The problem with the strong gains seen in a few select AI-related stocks is that it clouds wider stock market performance.
Without the AI-led rally, the S&P 500 would be returning -1.4%. as of May 17, 2023.
This form of steep divergence, known as market breadth, often signals higher risk in the market.
When more companies experience positive returns it is less risky than a small handful seeing the majority of the gains. Today market breadth is very narrow, and these companies make up over 29% of the entire index’s market capitalization.
How long AI-related firms mask the broader performance of the S&P 500 remains to be seen. A growing number of market pressures, from higher interest rates to banking uncertainty could add further challenges.
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