Considerations for future financial asset prices (equities, corporate bonds)

Three mechanisms need to be considered when it comes to future corporate financial asset prices. Potential growth will be lower after the COVID crisis, which normally lead s to lower profits; Real interest rates will be even lower than before the crisis under the effect of excess savings, which will drive up asset valuation ; Central banks’ behaviour (moral hazard: investors believe they are insured against a fall in asset prices; portfolio rebalancing due to excess liquidity) will drive up asset prices. The valuation effect and the monetary policy effect will outweigh the earnings effect, leading to a clear decoupling between financial asset prices and the real economy (growth, earnings, etc.).