Please sir, can I have some more?

THE SIMPLE REASON CASH IS KING (OR QUEEN) IN PERIODS OF RISING RATES

The capital markets are leaving a period of historically low interest rates, resulting in rising costs of future capital and earnings. In other words, we can no longer rely on or reward high levels of ‘cheap’ debt.

Highly indebted companies will face rising financial expense and reduced levels of returns while companies not generating adequate cash flow to fund growth will see a capital squeeze.

As cash in hand becomes increasingly scarce for both managements and investors alike, there will be a valuation divergence between ‘high quality’ structural growth stories and ‘low quality’ players.

Elevated levels of inflation go on to fuel this gap by escalating the rise of interest rates (IR) – further strengthening the value of capital on hand.