Long-run equity returns 1. • In the long run total return on equities approximates to initial dividend yield plus growth rate of dividends and growth rate of dividends is dominated by growth rate of national output. • Economic growth is fundamental to the capital gains that make equities attractive relative to higher-yielding investments, such as bonds, convertibles or property.
29
Embed
Long-run equity returns 1. In the long run total return on equities approximates to initial dividend yield plus growth rate of dividends and growth rate.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Long-run equity returns 1.
• In the long run total return on equities approximates to initial dividend yield plus growth rate of dividends and growth rate of dividends is dominated by growth rate of national output.
• Economic growth is fundamental to the capital gains that make equities attractive relative to higher-yielding investments, such as bonds, convertibles or property.
Long-run equity returns 2.
• Assume the following:-• 1. Productivity growth 1 1/4% a year • 2. Employment contracting by 1/2% a year• 3. Ratio of profits to GDP falling by 0.2% a year• Then, what is the trend rate of profits growth, and
so of long-run capital gains p.a. in real terms?
• Answer = 1/2% a year
Productivity growth in the Euro-zone 1996 - 2000
• 1996 1.1%
• 1997 1.6%
• 1998 1.2%
• 1999 0.9%
• 2000 1.3%
• 2001 1/2% ?
• Average growth rate of productivity is little more than 1% a year.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
EU15 Productivity growth Trend line
SLOWING PRODUCTIVITY GROWTH IN THE EU
What do we mean by “Europe”? 1.
“Europe” is to be understood in avery broad geographical sense. Itincludes 38 countries most ofthem with population under 10m.and of little economic importance.Their total population in 2000was 807.3m and working-agepopulation was 537.7m.
o
What do we mean by “Europe”? 2
334222
150
102
81
55
66
42
59
39
59
38
58
39
0
100
200
300
400
500
600
700
800
Total population Population of working age
m.Italy
UnitedKingdomFrance
Turkey
Germany
RussianFederationOther
Europe’s demographic problems 2000-2030 1. Chart shows projected population of working age for Europe as a whole. Projection based on 1994 World Bank data
538551
537
514
490
500
510
520
530
540
550
560m.
2000 2010 2020 2030
Europe’s demographic problems 2000-2030 2. Chart shows projected falls in population of working age, 2000-2030,%. Projection based on 1994 World Bank data
-24.1
-21.5
-15.2-14.1 -13.6
-7.1-5.7
-4.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
Germany Italy Spain Netherlands BelgiumRussian
FederationUnited
Kingdom France
Europe’s demographic problems 2000-2030 3. Chart shows projected fall in population of working age in all those countrieswhere it is falling. Decline is about 1/2% a year.
436 435
415
388
360
370
380
390
400
410
420
430
440 m.
2000 2010 2020 2030
Europe’s demographic problems 2000-2030 4. Chart shows projected fall in population of working age in “falling” countries and rise in “rising” countries, between 2000 and 2030.
436 388
102 126
0
50
100
150
200
250
300
350
400
450m.
2000"Falling" countries
2030 2000"Rising" countries
2030
Another view: Latest UN assessment of change in Europe's working-age populations, 2000 - 2050
-45.1 -44.4 -44.1
-30.2
-22.4
-17.3 -16.1
-11.8
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
%
This assessment was made in 2000, after substantial migration - mostly from east to west in Europe - in the mid- and late 1990s.
WORKING-AGE POPULATION - W. EUROPE Latest UN projections of 15 - 59 age group
0
10000
20000
30000
40000
50000
60000
in '000s
2000
2050
THE LATEST ASSESSMENT 1.Population of working age in millions, according to 2002 World Bank projections