NEWSLETTER of June 5, 2020

The following content has been added at finexpert:

McKinsey & Company
COVID-19 UND DIE FINANZIELLEN FOLGEN FÜR DIE GKV
Since February 2020, the SHI market has been experiencing what is probably the most comprehensive crisis in recent decades with the COVID 19 pandemic. Its social and economic consequences are still hardly foreseeable. It is precisely for this reason that legislators and self-governing partners began to draw up comprehensive resolutions and recommendations in the same month. All in all, these measures are likely to result in an additional burden for the SHI system - both in terms of income and expenditure. >more

I-ADVISE
STUDIE ZU IMPLIZITEN MARKTRISIKOPRÄMIEN UND MARKTRENDITEN 2008-2019
In this study, I-Advise derives not only implicit market risk premiums but also the expected implicit market returns for each quarter in the period 2008 to 2019. The results published in issue 1/2020 of BewertungsPraktiker are included. The study shows a high correlation between implicit market returns and the base rate. It also shows which market risk premiums result from variation of the assumed growth rate. >more

UBS
REAL ESTATE OUTLOOK
COVID-19 is affecting all real estate markets globally. Recession will hit occupier demand, with the retail sector being worst affected and logistics most resilient. Central bank easing and liquidity should support real estate values, though we still expect some declines this year. Ultimately, recovery will depend upon how quickly the health crisis is brought under control, with a vaccine likely needed for a full exit. >more

EY
RECHNUNGSLEGUNG IN ZEITEN DER CORONA-PANDEMIE
The effects of the coronavirus outbreak continue to develop very rapidly. Many countries have introduced various measures such as travel restrictions and quarantines; in some countries these regulations are already being relaxed. Overall, however, the measures have led to a significant drop in demand for goods and services and disruption of supply chains. The financial markets are also highly volatile. This publication is a reminder of the existing accounting rules that should be taken into account when considering the financial impact of the coronavirus outbreak when preparing IFRS financial statements for annual or interim reporting periods up to 2020. >more

EQUITY RISK PREMIUMS: DETERMINANTS, ESTIMATION AND IMPLICATIONS - THE 2020 EDITION
Aswath Damodaran
2020
The equity risk premium is the price of risk in equity markets, and it is a key input in estimating costs of equity and capital in both corporate finance and valuation. Given its importance, it is surprising how haphazard the estimation of equity risk premiums remains in practice. We begin this paper by looking at the economic determinants of equity risk premiums, including investor risk aversion, information uncertainty and perceptions of macroeconomic risk. In the standard approach to estimating the equity risk premium, historical returns are used, with the difference in annual returns on stocks versus bonds, over a long period, comprising the expected risk premium. We note the limitations of this approach, even in markets like the United States, which have long periods of historical data available, and its complete failure in emerging markets, where the historical data tends to be limited and volatile. We look at two other approaches to estimating equity risk premiums – the survey approach, where investors and managers are asked to assess the risk premium and the implied approach, where a forward-looking estimate of the premium is estimated using either current equity prices or risk premiums in non-equity markets. In the next section, we look at the relationship between the equity risk premium and risk premiums in the bond market (default spreads) and in real estate (cap rates) and how that relationship can be mined to generated expected equity risk premiums. We close the paper by examining why different approaches yield different values for the equity risk premium, and how to choose the “right” number to use in analysis. >more

VALUING ESG: DOING GOOD OR SOUNDING GOOD?
Bradford Cornell, and Aswath Damodaran
2020
In the last decade, companies have come under pressure to be socially conscious and environmentally responsible, with the pressure coming sometimes from politicians, regulators and interest groups, and sometimes from investors. The argument that corporate managers should replace their singular focus on shareholders with a broader vision, where they also serve other stakeholders, including customers, employees and society, has found a receptive audience with corporate CEOs and institutional investors. The pitch that companies should focus on “doing good” is sweetened with the promise that it will also be good for their bottom line and for shareholders. In this paper, we build a framework for value that will allow us to examine how being socially responsible can manifest in the tangible ingredients of value and look at the evidence for whether being socially responsible is creating value for companies and for investors. >more