Английский язык для экономистов - Малюга Е.Н.
ISBN 5-469-00341-8
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2. If productivity comes at the expense of jobs, it....
3. In case oil prices increase, it....
4. Unless vaccine for SARS is found,....
5. Ifthe market is oversupplied,....
G. Speak up
G.l. Answer the following questions.
1. What do governments and companies use markets in securities for?
2. What is the secondary market? Give an example.
3. One American tycoon punned saying "Gentlemen prefer bonds." What did he mean?
4. What account for most of what is traded in the financial markets?
5. What are the investment perspectives in your country? Unit 8. Financial Markets and Investments
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G.2. Discussion topics.
1. Suppose you are a financial consultant. Your customer is 56, he is married and has two grown-up daughters. He has several million dollars that he'd like to invest with 100 % safety. At the same time he would like to have free access to his funds and get regular income to avoid taxes legally. What investment portfolio would you suggest?
2. In your opinion why do companies issue and people buy the shares?
H, Reading the English newspaper
H.l. Read the article and do the exercises.
In Search of Those Elusive Returns
"The Economist"
Despite this week's stock market rally, tumbling equity prices and bond yields have sparked a fierce debate over asset allocation.
Early this week the markets were telling themselves that the second Gulf war was as good as won. Equities rallied; bond and oil prices fell; gold hardly flickered. But that did not help investors, such as insurance companies and pension-fund managers, with their thorny conundrum: how to allocate their assets over the long term? The accepted wisdom, that equities offer superior returns in the long run, has recently looked a little hollow. Forecasts for the so-called equity risk premium (the return in excess of the yield on government bonds demanded by investors to compensate for the extra risk of holding equities) range from a traditional 5 % to as little as 2.4 % a year. Such a thin premium may look on the low side to many investors, given that share prices could tumble again and that more corporate misbehaviour may be uncovered. Yet most of the alternatives to pure equities — bonds issued by governments (in developed or emerging markets), municipalities or companies; asset-backed securities; funds of hedge funds; bonds indexed to equities or to credit risks — all seem loaded with their own mixture of downside risk and lacklustre returns.
What can an asset manager do, apart from hiding under the duvet? There is plenty of advice available. For example, the amazing foresight of the pension fund of Boots, a British retailer, which moved all its assets into bonds in 2001 to miss the worst of the equity slump, is now inviting criticism. "Why sacrifice around 3 % a year so that trustees can sleep peacefully at night? That's a lot of money compounded over 25 years," argues someone who thinks he knows better. The reason is that, for some pundits, equities have lost so much value that they are beginning to look cheap. In 146
Английский ЯЗЫК ДЛЯ экономистов
some cases the dividends paid on shares, divided by share prices, are even outstripping the yield on bonds issued by the same company. This makes no sense. The share price has no theoretical ceiling, while the bonds pay a fixed amount. A handful of academic works on the equity risk premium, published in the past year, far from gathering dust on university bookshelves, have become the stuff of hot debate in investment banks and company boardrooms, and among the trustees of pension funds and even university endowments.
Why? Because popular assumptions about long-term investment returns have been overturned. A year ago Robert Arnott, chairman of First Quadrant, an investment firm, and Peter Bernstein, an investment adviser, estimated that the equity risk premium should be as low as 2.4 %. They argued that accidents of history, survivor bias, changes in corporate culture and many other factors had made equity returns look higher than they really were over the past 75 years. And they concluded that the outlook for equity and bond returns in the short term was about the same: between 2 % and 4 %. Sobering conclusions have also come from academics at the London Business School, whose analysis of equity returns since 1900 shows that, before the last bull run, only two decades, the 1950s and 1960s, had produced real rates of return of over 10 %. The authors, Elroy Dimson and others, note that returns were low in 1900, but that investors became used to higher returns over the next century.
Now, perhaps, shareholders will have to accept lower rewards once again. Bill Gross, a fixed-income champion at Pimco, an American asset-management firm, predicted last September that bond returns will outstrip equities until share prices fall to their fair value, that is, until the Dow Jones Industrial Average is at 5,000 rather than today's 8,000-odd. However, those with an equity bias, such as Chris Johns, chief economist at ABN Amro Securities, continue to argue for at least a 60 % equity weighting over the long term. "We're near to the wrong point of the cycle to go into bonds," he says. The debate is even causing ideological rifts within the same financial institution, says Mr. Dimson of the London Business School. Corporate financiers are quoting one equity risk premium to companies creating incentive plans for their employees; fund managers pick another rate for asset allocation; those advising utilities use another to negotiate with governments on funding; universities worry about how much of their endowments they can spend each year. Then there are the aggregate — often wildly optimistic — returns forecast by equity analysts. "These are very hot issues," says Mr. Dimson, "since the equity risk premium drives decisions on asset allocation and company investments." Institutional investors Unit 8. Financial Markets and Investments
