Global Value Rotation Has Morphed Into Chasing Risk at Any Price

The great global rotation out of growth into value stocks looks to have stalled this year, and investors have switched to chasing the riskiest stocks from both cohorts.

The MSCI World Value Index has performed in line with its growth counterpart this year -- up about 4% -- after a late 2020 burst saw it outperform by over 6 percentage points from the period just after the U.S. election. An analysis of return data from Societe Generale SA shows while investors have continued to chase the most volatile value stocks in 2021, they have also been backing the riskiest growth names.

“The demand so far this year has really been for the riskier stocks, be they expensive and exciting technology names or cheaper names beaten up by the economic slump,” wrote strategists including Andrew Lapthorne on Thursday. “While you might then conclude there has been a rotation out of low volatility names, it is only the expensive, more glamorous part of the high-quality segment of the market that is suffering.”

Global Value Rotation Has Morphed Into Chasing Risk at Any Price

According to SocGen, the most expensive and volatile global stocks have risen over 12% so far this year, with the cheapest volatile names up about 11%. The most expensive and defensive stocks are the ones that have underperformed, with their earnings expectations also taking a hit relative to peers, the team showed.

Late last year, hopes for further stimulus after the U.S. election and the start of vaccination campaigns sparked a global stocks rotation into value sectors and out of more defensive industries like technology. While all the elements for that value beat remain in place -- improving growth and inflation expectations -- this data suggests investors have adopted a so-called barbell strategy and are refusing to give up on all but the most staid growth names.

The analysis will be further evidence for those who think much good news on the reflation front is already priced into markets, and continue to worry about signs of froth in risk assets.

“The story of the last few months has been less about value versus growth and more about a rally in riskier stocks,” the SocGen strategists wrote.

©2021 Bloomberg L.P.

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