He added that lots of uneconomic companies remaining in existence means the most productive companies in a sector are effectively dragged down by being unable to charge higher prices, this hinders overall productivity, and eventually, economic growth, over the longer term.
In terms of where to invest in such a world, Simon King, chief investment office at Vermeer Partners, a wealth management firm, says he is generally avoiding government bonds, due to the low yields, and said it would be difficult to justify to a client an investment in something that is guaranteed to lose money, as well as charging the client a fee for the investment management.
He favours assets that are effectively priced relative to bonds, such as alternative income investment trusts in areas such as infrastructure.
For equity market allocations, he said funds that use the growth style of investing and own companies such as Unilever and Diageo, which have low but regular earnings growth that would look more attractive relative to bonds, are where he is focused.
He is not keen on the funds that invest using the value style, as many of those companies are in areas such as banking and airlines, which suffer when the rate of economic growth is low.
Mr Edelsten says: “As any Japanese investor has found, it's very hard to manage a bank in a country with negative rates.
"Your depositors are unlikely to be happy seeing their deposits shrink in nominal amount, and meanwhile borrowers will find lenders willing to lend at very low interest rates, short term at least. So margins are squeezed, but costs of operation stay the same.”
David Thorpe is special projects editor of Financial Adviser and FTAdviser
