Issue Prolonged valuation gaps distort capital allocation and feed inequality before correcting

Summary

MGI sets out a test for healthy wealth growth: over the long run, asset values should move broadly in step with the underlying economy. Valuations running ahead of the economy, and beyond global norms, can for a time reflect genuine confidence in future growth. But gaps that persist, especially when they come from rising valuation multiples driven by easier financial conditions such as low rates and abundant liquidity, have historically corrected, in line with the theory of mean reversion. Until that happens, excessive valuations can steer capital toward chasing price gains instead of real investment opportunities. They can also add to wealth inequality, which is why the report treats such gaps as early warnings that need close monitoring.