-- What distinguish #investment from smart money is the status and accessibility of target #currency
-- The influx is smart money while RMB is gaining credibility of global asset
Among the two major factors pushing up valuation(Equation1), earnings, driven mainly by economic growth, build the base and the discount rate creates bubbles.
Index’s discount rate is a weighted average of #equities with different risks and, given no change in its risk, the discount rate for some certain equity is determined by the expected return required by the capital, which has the lowest cost, among all capitals, including overseas, ready to buy it at that moment.
In the case of money from US, the interest rate gap between China and US does not conceptually play a role in producing money cost gap because the interbank rate is adjusted with money liquidity in that economy, which, with costs generated in transition, offsets the rate gap.
The reason that money from US has lower cost is actually because of Fed's unprecedented purchase of 5 years or longer treasuries and corporate bonds. The dollars created in this way is smart money, which is unlikely to bring the same support to a non-dollar equity market as local money.