Trade finance investments in times of rising interest rates.

Insights Insights| 19 April 2023
Key reasons why credit-insured factoring and trade finance is an excellent investment in times of rising interest rates and volatile markets.

With interest rates rising globally, traditional investment options have become increasingly uncertain. It is now more critical than ever for investors to diversify their portfolios and safe-harbour their investments. This article explores how credit-insured factoring and trade finance is an often-overlooked asset class that provides an attractive yield, low risk and stability in the face of rapidly changing market conditions.

Trade Finance is an excellent investment to combat rising interest rates for five reasons:

  • High yields, low risk: With rising interest rates and volatile markets, investors often turn to fixed-income assets for stability. With short-term tenor, credit insured and secured by the underlying goods being traded, factoring and trade finance offer an attractive and safe alternative to traditional markets. Unlike other fixed-income assets, the margins or yields in trade finance transactions can be agreed upon at the time. Hence do not fluctuate with market conditions. This makes trade finance returns a stable and predictable investment option.
  • Low correlation with other asset classes: A critical advantage of trade finance is its low correlation with other asset classes like stocks or bonds, providing diversification to any investment portfolio. Adding trade finance to a portfolio mitigates risk exposure while stabilising, if not enhancing, returns.
  • Participation in essential global trade growth: Factoring and trade finance are essential to international trade. By investing in trade finance, investors participate in the development of the global economy and benefit from the increasing demand for trade financing.
  • Opportunity for international investment: Trade finance is not limited to a single country or region, making it an ideal investment option for international investors. Whether focused on Europe, Asia, or the Americas, credit-insured trade finance and factoring provide a unique opportunity to selectively diversify your portfolio and gain exposure to a wide range of global trade transactions.
  • Trade finance performance during economic downturns: Trade finance has a proven track record of performing well during economic downturns. Trade finance remained resilient during the 2008 financial crisis while other asset classes suffered. Trade finance was one of the few asset classes that continued to provide stable returns during the crisis. Similarly, during the Covid-19 pandemic, trade finance emerged as a sound investment option, maintaining low default rates and attractive yields.

In short:

Whether you are a domestic or international investor, trade finance provides the rare opportunity to invest in the global economy while mitigating risk and achieving attractive yields – all backed by credit insurance.