Pre-GFC markets unlikely to return
Investment markets are unlikely to return to pre-global financial crisis conditions as the global economy has moved away from its traditional industrial base towards a digital and service base which is harder to price and value using current methodologies.
This has caused the development of a ‘black economy' in which contributions to gross domestic product are not reported or measured and which are not picked up by investors according to Colonial First State Global Asset Management Senior Analyst, Economic and Market Research James White.
White said that since the GFC manufacturing economies were no longer the most productive and the rise of the digital and service economy had placed pressure on investment managers looking to place capital.
According to White capital markets seldom invest in service based businesses despite this sector not having been measured or valued properly by governments and investors due to its intangible nature.
"The Australian Bureau of Statistics has not measured the economic contribution of the services economy to the wider economy because they see its benefits as subjective while it considered the industrial economy to be measurable and objective. Capital markets also don't know how to value services even though most people spend more on services," White said.
He stated this had created difficulties in placing equity as typical valuations looked for incremental investments and returns which was more difficult to find in the non-tangible products produced by a digital and service based economy.
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