Pivot to Value Stocks in Asia May Fail to Match U.S.

Any pivot toward value stocks from their growth counterparts in Asia will likely be less dramatic than in the U.S. because of the more evenly distributed equity rebound in the region.

An equal-weighted gauge of the MSCI Asia Pacific Index has outperformed its capitalization-weighted version this year by about 2 percentage points while the U.S. equivalent is underperforming the S&P 500 by about 11%. Meanwhile, the Federal Reserve’s recently acquired comfort with higher inflation and positive sentiment toward a coronavirus vaccine has so far failed to inspire a noticeable rebound in cyclical-heavy equity gauges in Singapore, Indonesia and Philippines.

Pivot to Value Stocks in Asia May Fail to Match U.S.

“The value rotation will have more opportunity in the U.S. than Asia on an aggregate basis because tech has rallied a lot in America,” said Shekhar Jaiswal, head of research at RHB Singapore. “Investors should look at select value opportunities with earnings visibility on a country specific basis in Asia.”

U.S. stocks sold off hard on Thursday as investors took profits in high-flying technology stocks. The S&P 500 Growth Index fell 4.5%, with declines in its value equivalent a milder 1.9%. Asian stocks opened lower on Friday, although by a less magnitude. The Topix index fell 1.1% as of 9:27 a.m. in Tokyo while Korea’s Kospi was down by about 2%.

While the correlation between fast-growing companies and their much cheaper counterparts is at its lowest since early 2000 for both Asia and the U.S., the American reading recently turned negative for the first time in two decades. In Asia, the two cohorts show a much closer relationship.

Pivot to Value Stocks in Asia May Fail to Match U.S.

Calls for a rebound in value stocks have gotten louder after Fed Chair Jerome Powell said last month the central bank will shift to a more relaxed approach on inflation.

As a result, investors should “maintain long-term core positions in growth equities and rebalance into selective names in cyclical/value sectors such as industrials, energy and commodities,” Eli Lee, head of investment strategy at Bank of Singapore Ltd. wrote in a note on Monday.

©2020 Bloomberg L.P.

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