What lies beneath the cheerful returns
By Yoonjai Shin, CFA
Vice-President & Portfolio Manager, Multi-Asset Management
This holiday season, investors can be cheerful about recent outstanding equity market returns and the increasing likelihood of business-friendly tax reforms by the U.S. government. However, it is important to acknowledge the worsening imbalances that lie beneath the glittering peaks of today’s elevated asset prices. Low interest rates since the financial crisis in 2008-09 have greatly benefited investors but have done little to benefit the average household. In the United States, real hourly wages have grown at a meagre 0.4% annual rate since March 2009 while over the same period, real gross domestic product advanced at a 2.1% pace and the S&P 500 Index soared an annualized 15% in real terms. To avert a serious depression, central banks created unprecedented stimulus packages to inject liquidity into the financial system and restore investor confidence. Unlike holiday gifts, the stimulus packages came with a lasting cost that will continue to affect the global economy for years to come.