Slower China Means Higher World Real Interest Rates

by Michael J. Howell14. August 2013 22:28
The outlook for our least favourite asset class in 2013 - TIPS - still looks poor. China's structural slowdown, in large part the result of tight PBoC liquidity hitting capex spending, will allow capital productivity in other economies, notably Japan and the US, to pick-up. This will push up World real interest rates from the circa 0% level nearer to their 2-3% long-term average. High inflation is not the threat; higher real interest rates are. This will push nominal bonds towards a 4-5% yield base. Equities still look the best asset class, but markets are ultimately moving towards a 1987-like ending. See report: How China Sets World Interest Rates (part II).

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