Dan Kemp: Answering three more pressing investment questions

Could the current low bond yields justify the high equity prices? Of course, they may be justified — and may even go higher — however we would need to distinguish between cyclical and structural developments. That is, the long-run equity value discount rate really depends on whether borrowing costs will stay low permanently, due to some structural development, or likely to revert higher as conditions return to normal. This can be broadly captured in three scenarios. 1. In the ‘permanently low rates' scenario, higher equity prices could be validated. Corporates will enjoy cheaper fundi...