Why equity valuations (PERs) are likely to be permanently lower after the coronavirus crisis

Severe crises give rise to a lasting rise in risk aversion. This will undoubtedly be the case with the coronavirus crisis. A lasting rise in risk aversion leads to a lasting rise in the equity risk premium, as was the case after the subprime crisis. But after the subprime crisis, the rise in the equity risk premium was offset by a decline in long-term interest rates and therefore had no effect on PERs. The situation will be different after the coronavirus crisis, as long-term interest rates cannot go lower ; t hey may even rise slightly due to the huge supply of bonds. If long-term interest rates are slightly higher and the equity risk premium is higher, then this time there will be a lasting fall in PERs (and also, with a lag, in other valuation multiples, such as for private equity).