Via the AFR:
“As a result of lower long-term interest rates our cost of capital has naturally lowered over recent years,” Medibank chief executive Craig Drummond told The Australian Financial Review’s annual Chanticleer CEO poll.
“Nevertheless, those lower interest rates have elevated asset prices, making inorganic investment more challenging.”
Tabcorp chief executive David Attenborough backed this view. “Although interest rates are an input to our cost of capital, equity risk premiums have, in our view, gone up, balancing out any benefits from low interest rates.”
Therein lies the trap of zero interest rates. As yields collapse and equity risk premiums rise it becomes a no-brainer for firms to return capital to shareholders via dividends or buybacks over investment.
This is why equities end up behaving like bonds, providing yields, while bonds end behaving like equities, providing capitla return.
It’s the upside down and bleat as it might the RBA can do nothing about it.