Characteristics of bonds and equity markets
Low Volumes, high net purchase patterns, suggesting a strategy based on long holding periods
the less volatile component of portfolio flows
Equity investors put emphasis on equity valuation (e.g. knowledge base, the depth and the movement of the equity market.
Equity investors are more attracted by floating exchange rates – fixed or stable exchange rates tend to overtime undermine competitiveness and hence profitability leading to reduced returns on equity investments. The value of the equity tends to be maintained in real terms when exchange rates depreciate. When investments are in the export industries, even the dollar value of the equity investment is robust to depreciation.
Equity investments tend to return to countries hit by crisis when asset prices are low
high volumes – low net purchase pattern suggesting a strategy with short-term
- horizon. Transactions motivated by
arbitrage opportunities and short-term interest fluctuations
the more volatile component of portfolio flows
Bond investors look at indicators and aggregates related to real yield (e.g. current accounts, currency movements)
International investors in domestic (emerging) markets are more interested in fixed or stable exchange rates – stable exchange rates work to safeguard the value of the principal, for investments in fixed interest securities, enabling investors to benefit fully, in the case of fixed exchange rates from the risk premiums in emerging market interest rates.
Bond investors act more nervously than equity investors
Equities Bonds