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Economic influences on investment markets and other influences (property…
Economic influences on investment markets and other influences
short term interest rates
government policy
economic growth
low interest rates ->increased consumer and investment spending -> economic growth
inflation
low interest rates-> increased demand for money -> higher inflation
exchange rate
low interest rates relative to other countries -> less investment from international investors -> depreciation of domestic currency
short-term government bond yields
closely related to short-term interest rates because short-term government bonds and money market instruments are close substitutes
long term government bonds
supply
government's fiscal deficit and funding policy
demand
expectations of future short-term real interest rates
expectations of inflation
the inflation risk premium
the exchange rate, affects overseas demand
institutional cashflow, liabilities and investment policy
returns on alternative investments
other economic factors (eg tax, political climate)
equity markets
supply
relative attractiveness of debt and equity financing
rights issues, buy-backs, privitisations
demand
expectations of real economic growth
expectations of real interest rates and inflation
inflation
high inflation often associated with high interest rates -> unfavourable for economic growth -> reduce equity prices
expectations of high inflation -> government raises real interest rates -> reduces equity prices
high inflation ->greater uncertainty over inflation-> increased demand for rel assets -> increase equity prices
expectations of the equity risk premium
the exchange rate, affects overseas demand
institutional cashflow, liabilities and investment policy
returns on alternative investments
other economic factors (e.g.tax, political climate)
property market
occupation market
expectations of real economic growth, buoyancy of trading conditions and employment levels
expectations of real interest rates
structural changes (e.g. a move to out of town working)
development cycles
investment market
Supply
development time
economic growth- development cycle lags behind peak of business cycle, often means glut of new property as economy slows down
real interest rates
statutory control
fixity of location, high transaction costs and segmented markets
factors affecting demand for assets
investors' incomes
investors' preferences
price of other assets
investors perceptions of asset
factors affecting supply of assets
new issues/redemptions
fiscal strategy
technological innovations
derivatives