Author Topic: How does the global middle class expansion affect stock valuations?  (Read 763 times)

DrF

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Should we expect equity valuations to rise as more people across the globe enter the market?
https://www.brookings.edu/research/the-unprecedented-expansion-of-the-global-middle-class-2/
http://siteresources.worldbank.org/EXTABCDE/Resources/7455676-1292528456380/7626791-1303141641402/7878676-1306699356046/Parallel-Sesssion-6-Homi-Kharas.pdf
http://oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html


If bond yields stay low, the only choice is to invest in stocks to beat inflation.

According to this analysis, most of the increase in stock price during the 2009-current bull market is due to compressed equity risk premium (meaning: people take on more risk as the only way to beat inflation).
http://www.businessinsider.com/stock-market-strength-is-about-the-equity-risk-premium-2016-7

So, wouldn't a global expansion of the middle class cause more people to invest in global markets and drive up stock valuations forever?

tsukuba

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Re: How does the global middle class expansion affect stock valuations?
« Reply #1 on: January 15, 2018, 11:07:08 PM »
I would say yes, but more because they consume things and drive growth.

bwall

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Re: How does the global middle class expansion affect stock valuations?
« Reply #2 on: January 16, 2018, 06:01:08 PM »
Should we expect equity valuations to rise as more people across the globe enter the market?

So, wouldn't a global expansion of the middle class cause more people to invest in global markets and drive up stock valuations forever?

Not all middle classes are created equal.

In mainland China, the currency is not convertible and the citizens cannot invest outside of China. Also, foreigners cannot invest in the Chinese stock market. So, there is little chance of those hundreds of millions of newly minted middle class entrants participating in the world stock market.

In India, I believe that the preferred middle class investment is gold. And, from what I've heard about business practices there, I believe that to be a wise decision by millions of Indians.