Assets can be funded by debt, and the cost of debt is interest. If interest rate is falling but credit is scarce as in the current climate, what are the implications for shareholders?
Related resources
Replies (8)
Please login or register to join the discussion.
what do you mean by no assets? is that mean that the shareholder will not investing anymore in that company ?
wth
chime in here, but the question is so asinine I decided not to.
..............................................
There are too many variables to answer your question concisely. It depends on the outlook for credit availability, or the trend, if you like. If there is an expectation that credit will become more freely available then asset prices are likely to rise . An expectation of less credit availability will mean asset prices fall (all other things being equal).
Shareholders of a business that invests heavily in assets (e.g. steel stockholder) are likely to benefit from more credit availability. However, many businesses (e.g. services businesses) have low relative investments in assets and in this case the impact of availability of credit will be less pronounced.
As for the price of shares, once again the credit outlook is key (much less so interest rates IMO).
One must not forget that although the trend in interest rates could have generally been considered to have been downwards up until 2009, this is no longer the case. We have a strange situation where despite the Govts trying to force lending rates lower by forcing bond prices higher (and implied interest rates negative in some cases - people paying interest for the privilege of lending money!), credit has been in decline. Lenders are demanding more reward for taking on the risk.
IMO and somewhat counterintuativly, we need interest rates to start rising (which will only happen when Govts feel that the economy is going to strengthen) before there will be a recovery in credit. A bit chicken and egg.
A bit of a politicians non-answer I'm afraid.