- "The sharp rise in the results of listed companies stems above all from the distortion of income sharing at the expense of wage earners. Investors may have two types of reaction to this situation:
• positive reaction: the improvement in results attracts investors and the stock market rises;
• negative reaction: the (excessive) distortion of income sharing creates expectations among investors of sluggish household demand and lacklustre growth, which discourages them from investing in equities and drives down the stock market."
- "We are therefore dealing with a clash between the effect of the distortion of income sharing on profits and its effect on PERs. When looking at similar situations in the past (euro zone in the 1980s, Japan in the 1990s), we conclude that the first reaction is likely to prevail: stock market prices can be expected to move in line with the improvement in company results."
- "This is what was seen in the 1980s in the euro zone; in Japan, on the contrary, there has been a sharp decline in PERs since the late 1990s, but this observation is difficult to use given the extraordinarily high level of PERs in Japan in the late 1990s: it was 80 in 2000."
• positive reaction: the improvement in results attracts investors and the stock market rises;
• negative reaction: the (excessive) distortion of income sharing creates expectations among investors of sluggish household demand and lacklustre growth, which discourages them from investing in equities and drives down the stock market."
- "We are therefore dealing with a clash between the effect of the distortion of income sharing on profits and its effect on PERs. When looking at similar situations in the past (euro zone in the 1980s, Japan in the 1990s), we conclude that the first reaction is likely to prevail: stock market prices can be expected to move in line with the improvement in company results."
- "This is what was seen in the 1980s in the euro zone; in Japan, on the contrary, there has been a sharp decline in PERs since the late 1990s, but this observation is difficult to use given the extraordinarily high level of PERs in Japan in the late 1990s: it was 80 in 2000."
Natixis Flash Economics 413 20100825
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