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Asset allocation in investment
Asset allocation in investment

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4.3 Decline in demand for equities 1

The next activity explores why demand for equities worldwide has changed over time.

Activity 6 Global equity demand

Timing: Allow around 30 minutes for the reading and activity below.


Increased wealth in emerging economies


The aging population of developed economies


Developed economics are switching from defined benefits to defined contribution schemes


Higher income tax rates on dividends


Increased regulation on insurance companies


The 2008 crash made investors wary of equities which was riskier than bonds


Basel 2 and 3 regulations penalises financial institutions for holding equities


Reduced wealth in emerging economies


The 1929 Wall Street Crash

The correct answers are a, b, c, f and g.


These are:

  1. Increased wealth in emerging economies where tradition favours bank deposits or bonds.
  2. The aging of the populations of developed economies: older people tend to hold more bonds and less equities than younger people in their portfolios.
  3. Developed countries are switching from defined benefit (DB) pension schemes to defined contribution (DC) schemes which has the effect of moving market risk from the employer to the employee. Individuals with DC schemes are more risk averse than investing institutions investing on their behalf in DB schemes and so hold a higher percentage of bonds in their pension plans.
  4. The crash of 2008 made investors wary of equities which are risker than bonds, especially given the good performance of bonds over the recent past.
  5. Regulations such as Basel 2 and 3 penalises financial institutions such as banks from holding equities.