An equity shortfall on way?

The McKinsey Global Institute found as aging investors move to balanced portfolios, few will own equities.

Because equity markets enable innovation by providing an exit for private investors, companies will have to finance growth through debt instead. Equity investments have also offered higher long-term returns than bonds or deposits. So, an equity shortfall will mean:

• Slower GDP growth;
• More concentrated ownership structures;
• Higher levels of economic volatility;
• Inefficient allocation of capital;
• Less ability for retail investors to generate wealth.

Read: Choose debt over equities

To stimulate their equities markets, emerging markets need these conditions:

• Rules and regulations protecting minority investors;
• Transparency by listed companies;
• Sufficient liquidity in the stock market;
• Presence of institutional investors;
• Easy access to markets for retail investors.

To encourage further equity flow worldwide, developed economies should:

• Encourage households to save and invest;
• Remove barriers to foreign investment to reduce home bias;
• Provide tax incentives for investing;
• Expand stock market access for smaller companies.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.