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Bank of America says financial assets are overvalued
Thursday 20 Oct 2016 Author: William Cain

Commodity returns over the last 10 years are at their lowest since the 1930s depression indicating it could be time for investors to load up on so-called ‘real assets’.

Real assets like property, commodities and infrastructure assets trade at low multiples to financial assets like stocks and bonds, say analysts at Bank of America-Merrill Lynch (BAML). Economic and political developments could favour the real rather than the paper economy argues chief investment strategist Michael Hartnett.

‘Our themes of peak liquidity, peak globalisation and peak inequality argue for small absolute returns from financial assets but big rotations across markets,’ writes Harnett.

‘The 2016-17 policy flip from quantitative easing, zero interest rate policies to less monetary stimulus and more fiscal stimulus reflects rising political pressure to reduce wealth inequality.

‘The protectionism and redistribution themes are also aimed at boosting Main Street at the expense of Wall Street.’

Hartnett adds: ‘As part of this rotation we expect real assets to outperform financial assets.’

Among the potential winners from the investment rotation to real assets include, according to Hartnett’s research, commodities like diamonds, gold, platinum and silver, US and UK property, collectibles, art and wine. Losers include small cap and large cap stocks and long-term government bonds. (WC)

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