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From: | "tennyson@caverock.net.nz" <tennyson@caverock.net.nz> |
Date: | Sun, 30 May 2004 15:21:00 +1200 |
Hi winner69, > >How about assessing an equity risk premium based on a >prospective view from where the market is currently at? > An excellent suggestion. > >The prospective equity risk premium can be expressed as >Current Earnings Yield plus Inflation (proxy growth rate) >less Government Stock Returns (the risk free case). >Makes sense as the earnings yield plus inflation represents >the value of future cash flows from equities compared to the >risk free rate of government stock. > >So in NZ what is the prospective equity risk premium? >With an average p/e of the top 50 about >18 the earnings yield is 5.5%, > Do you have a source for those figures? > >inflation expected to be say 2.5% and with >long term government stock returning about 6% the >prospective equity risk premium is currently about 2%. > (5.5%+2.5%)-6.0%= 2%, yes. > >This 2% is a little lower than the general figure of 3-4% being seen >as an appropriate figure. > And Price Waterhouse Coopers have suggested a risk premium of 7.5% for the NZ market according to Dean, although I think that includes the inflation component. So that means P.W.C. are using a non-inflation adjusted equity risk component of 7.5 -2.5= 5%. What the? > >Maybe the NZ market is currently slightly overvalued or >as Snoopy suggests that the NZ market is a much 'safer' >place to be than overseas markets. > Let's leave the comparison with overseas markets out of it this time, as that is a separate argument. If the risk premium on NZ shares is really only 2% Winner, then isn't Mr Market telling us that NZ shares are rather safer in comparison with NZ bonds than is generally believed? SNOOPY -- Message posted by Harry Tennyson using Pegasus Mail 4.02 I have Word 97 to read attachments ------------------------------------------------ ---------------------------------------------------------------------------- To remove yourself from this list, please use the form at http://www.sharechat.co.nz/chat/forum/
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