/ Photo by Darkhan Zhagiparov, photo editor: Aruzhan Makhsotova
According to Freedom Holding Corp. CEO Timur Turlov, the world has been dealing with a conundrum over the past several decades: the key interest rate designed to regulate economic activity stopped working. Lending activities were growing moderately amid extremely low rates after the 2008 financial crisis. However, now, when the rates are at their peak, the economy keeps advancing thanks to a securities market increase driven by technological innovation.
«We have never seen such a long period of absolute zero rates in the developed world — an outstanding 15 years. And, overall, we have never had zero-risk income remain so long on a zero level. During the COVID-19 pandemic, we faced enormous fiscal stimulus and monetary expansion and the burst of inflation, which was rather unexpected for us as the economy didn’t react to any monetary stimulus for a long time. The interest rate could have stayed at zero indefinitely, and it seemed like this wouldn’t have impacted inflation. Lending activities didn’t see a boost, likely due to the shock everyone remembers from 2008,» Turlov said.
He explained that, in theory, a zero interest rate should lead to significant expansion in lending activities. However, in reality, lending has remained moderate over the past 15 years. Meanwhile, central banks have taken on the responsibilities that were primarily handled by commercial banks.
«There still seems to be a significant amount of money circulating in the economy. Obviously, central banks increased the price of money, but at the same time markets still kept centralizing, and the role of the Magnificent Seven (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) is more prominent than it has ever been before. The capitalization and trading volume of these companies are enormous. We’ve made jokes about Nvidia taking 20 years to make its first trillion, one year and six months to make the second one; for the third one, they paved their way in a quarter; the fourth one is coming in just a day or two,» emphasized Freedom Holding Corp. CEO.
Turlov added that no one could ever imagine one company creating such value for the entire world and imposing such a share in a corporate profit.
«Because people have seen a big deal called AI. They say it may alter the world in a way that it won’t matter if the rate is 0%, 6% or 12%, as they believed in how powerfully game-changing this concept is. This boosted the demand and investment activity,» Turlov said.
The CEO of Freedom Holding Corp. emphasized that innovative ideas have become more appealing than zero-risk profits, which have increased today amid high bank interest rates.
“It turns out that regulators are reluctant to cut rates because they do not see signs of inflation or economic slowdown. Investor sentiment stays strong with the stock market hitting maximum, projecting no recession. When you see Nasdaq gaining several dozens of points every year, it’s pretty difficult to comprehend some economic downturn,” Turlov said.
He warned that the pace of interest rate cuts will likely be slower than expected, and high volatility is anticipated due to the centralization of the stock market.
Turlov previously explained why investing in midcap companies could potentially bring more profit compared to investing in the Magnificent Seven.
