Thomas Poullaouec, T Rowe Price
Value equities took another hit earlier this year, when there were increased concerns about potential Fed “tapering” (that is, reducing its asset purchases), and also amid anxieties about the number of covid delta variant cases developing.
Before that, the performance of value stocks had been finally set to exceed returns from growth stocks, after underperforming for 15 years: investors expected sharply rebounding economic growth, higher inflation, and the unleashing of pent-up demand as lockdowns eased.
“[Yet],the story for value may not be over just yet, as recent underperformance has led to more attractive relative valuations, global growth remains above trend, and supply and demand imbalances continue to keep inflation stubbornly high,” said Thomas Poullaouec, head of multi-asset solutions Apac of T Rowe Price.
“With the hopeful containment of the delta variant and increasing regulatory pressure on growth stocks, investors may start betting on value pulling off a double reversal this cycle.”
Value stocks typically trade cheaply relative to their earnings, assets, cash flow, and growth potential, and are often found in sectors such as banks, energy, materials.
The US asset manager favours value-oriented stocks globally and expects cyclical sectors to take advantage of strong economic growth and global reopening.
T Rowe Price believes that pent-up demand, economic strength, and infrastructure spending will boost US value stocks, while vaccine progress, a rebound in manufacturing, and easing of supply bottlenecks could be the catalyst for a surge in the performance of value equities in other global markets.
While growth equities remain supported when the global economy is peaking, T Rowe Price believes they have little room for upside and their expensive valuations make them vulnerable.
Other than value-oriented equities, US small-caps, and emerging markets stocks are also on T Rowe Price’s list.
When comparing asset classes, T Rowe Price favours bonds and cash as the risk/reward profile looks less compelling for equities.
