The power of central banks to move markets is undisputed but their power to revive economies has never been more in doubt. Central banks’ willingness to flood markets with cash and buy corporate as well as government debt has fuelled an astonishing rebound in risk assets. But for how long can asset prices decouple from economic growth? And what are the long-term implications for the financial system?
To examine these dynamics, this report draws upon extensive desk research and in-depth interviews with practitioners in the field. The key takeaways are as follows:
- Negative interest rates and quantitative easing are the biggest monetary experiments of modern times. Abundant central bank liquidity has buoyed asset prices and generated above-average portfolio returns over the past decade.
- This has significant implications on valuation metrics such as price to earnings multiples for stocks with different characteristics within the broad market. Stock selection will remain paramount in a low interest rate environment as economy-wide growth will not likely be sufficient to lift all boats, leading to a wider difference between stock market winners and losers.
- A low interest rate environment also enhances the appeal of alternative assets, such as private debt, infrastructure, real estate and private equity, which typically require long-term commitments. The broadening sector can offer investors flexibility in risk-return profiles, as they look beyond traditional investments for returns.
For more insights, please download the report or listen to the audio report. You may also like to explore the interview videos here:
Our investment experts discuss the significant structural shifts that are occurring as a result of low interest rates and how investors can capture the right investment opportunities in this landscape.
Fullerton’s strategist, Robert St. Clair discusses the structural impact of low interest rates on investors and capital markets, and how best to uncover the investment opportunities amidst the risks.
Ong Guat Cheng, Head of Fixed Income, shares where the opportunities lie for fixed income investors in an environment of low interest rates.
Andrew Maule, Head of Equities Research, discusses the impact of near zero interest rates on equity valuations.
Tan Huck Khim, Head of Alternatives, talks about the role of alternative assets in a low growth world.