From Kapitall:
There's been a lot of talk about income inequality. Does it have any effect on the stock market?Also at Kapitall:
One of the key points in President Barack Obama's State of the Union address was income inequality. Recent gains in the stock market have been hugely beneficial to the wealthy, who saw their portfolios grow significantly in 2013. But this hasn't been so good for everyone else, as wages and incomes have stayed pretty flat.
Interestingly enough, according to our partners at Hedgeye, income inequality isn't a Democratic or a Republican issue. They blame quantitative easing: something which was initiated by Ben Bernanke under President George Bush. Our question is, do differences in income inequality mean stocks perform better, or worse?
As the video explains, quantitative easing is basically asset purchasing. And when the government take over purchasing these assets, it keeps their prices high.
This is good for the wealthy, who see the values of these assets go up. But for everyone else, all you get is inflation. To actually buy the assets, the government needs to print money, which sends the value of currency down. Now, rich people usually only keep a relatively small portion of their assets in cash to get higher returns.
But as Hedgeye also explains, people lower on the economic ladder don't have a lot of assets. They usually live paycheck to paycheck. And if wages stay the same, but inflation goes up, then those paychecks can buy less and less.
Voila: rising income inequality.
In reality it's probably not as neat as that. There are many other factors contributing to the rising income inequality levels we've seen in the US, not the least of which is the fact that our low-skilled workers now have to compete with low-skilled workers all over the world.
But this still gives us something to think about. We decided to create a list of stocks in countries with high income inequality, and compare them with stocks based in countries with low income inequality, as measured by the Gini Coefficient. The Gini Coefficient is a figure published by the World Bank that looks strictly at a nation's distribution of wealth (but not how much wealth there is in total.)
We chose four stocks from Scandinavia, which has the lowest income inequality in the world, and three stocks from Hong Kong and South Africa, which have fairly high Gini Coefficients, meaning they have higher rates of income inequality.....MORE
Income Inequality: 7 Restaurant Stocks With Upscale Customers
