For most of the past decade, growth stocks have benefited from a low-growth, low-interest-rate environment. This has been true across both developed and emerging markets, and many growth-oriented stocks have benefited further in the wake of the pandemic. However, the global growth/value cycle may have turned in late 2020, leading to significant outperformance of value stocks since. We think this style reversion may have some legs, particularly among emerging market equities. This article explains why now may be an opportune time to favor a value orientation in emerging markets.
Update as of February 24, 2020:
We are currently monitoring the first readings of economic data covering January and February. Economic data is always lagging, and now we are seeing the extent of economic damage related to the coronavirus. Investors may be revising their estimates of how long and deep the slowdown will be. We are not surprised to see some of the virus’ effects, especially in Japan’s purchasing managers’ indices (PMIs). However, the upcoming release of China’s manufacturing PMI for February is due on March 1, and that will likely be a big event. In the run-up to the PMI release, we expect choppiness in markets with a bias toward weakness. Given the amount of monetary stimulus and fiscal support China has provided, we continue to believe that, while nasty and brutish, the slowdown should be short.
Dr. Brian Jacobsen, CFA, CFP®
Original post from January 27, 2020:
- The facts and circumstances around each epidemic matters, but after an initial sell-off, markets have tended to recover.
- The economic and market damage can be contained if the virus can be contained quickly and that’s what the market is wrestling with.
- While we have not altered our broad asset allocations, these instances can create opportunities on a security-by-security basis to manage risks and position for an eventual recovery.