Three things the Equity Risk Premium is telling us about investment markets
- Equity Risk Premiums (the additional expected return from equities over bonds) are currently elevated Globally and in the US, while less so in NZ.
- Entering equity markets at a higher equity risk premium has traditionally been a smarter decision than entering at a lower equity risk premium.
- If we see a reduction in the equity risk premium from elevated levels, this is likely to favour growth/cyclical assets as opposed to defensives.