Management of public companies run their businesses well and are subsequently rewarded as investors take note of their good performance and buy the stock. This draws in more capital as markets chase positive returns, which in turn drives the share price even higher. Conversely, if management run their business poorly, the mood turns bearish and more sellers emerge. The share price starts to fall, eroding sentiment even further as investors look to shift their capital elsewhere.
For the first time since the 1950s, global equities now trade on higher yields than government bonds. For income-hungry investors, equities are becoming the asset class of choice.
Recovering profits, rising cash on balance sheets and the search for yield are intensifying pressure on CEOs to return capital to investors. As part of the process, global equity markets are now awarding higher valuations to markets and sectors that weight dividends or share buybacks over capital investment. Many companies are shifting their behaviour in response
Third, while this market thirst for yield is global, the strategy team finds the corporate response to be more local. Yes, shareholders can force change in markets where management are more accountable. But this mechanism does not apply in all parts of the world. Elsewhere, other stakeholders can have a bigger influence – cross-holding structures, governments, families, management or employees
