The Rotation Into Asia Value Stocks Starts to Wobble, Too

(Bloomberg) -- It’s just two weeks since value rotation became visible in Asia, but the sudden return of risk-off sentiment has put it to the test. Just as was the case in the U.S.

The wild surge in the region’s cheaper but riskier stocks since the end of May has been mirrored just as extremely in the opposite direction, even ahead of broader market declines Thursday. The value cohort on the region’s benchmark lagged momentum peers by almost 2 percentage points in each of the past three days, reversing a prior outperformance, according to data compiled by Bloomberg.

Finance and energy groups, in which many value stocks are clustered, slumped the most in the last three days, sinking more than 5%. Pandemic beneficiaries like communication services and health care stocks are again proving to be the most resilient market segments.

The sharp swing illustrates investors’ indecision about the world’s post-Covid 19 road map. While continued value outperformance requires sustained improvement in economic data, the U.S. Federal Reserve Chair Jerome Powell signaled Wednesdaythat the path to recovery will be long. A possible second wave of coronavirus infections also casts a shadow over the global outlook.

Investors could get more clues on Asia’s recovery progress next week, as Japan, Indonesia and India publish May trade data, Australia and Hong Kong post jobless rates and central banks in Japan and Indonesia hold policy meetings.

READ: Asia Stocks Week Ahead: Japan Rates, China Retail, Tata Motors

Whatever the data show, value is witnessing a strong month in June compared with Asia’s benchmark. Even with the recent selloff, the investment style outperformed the region’s benchmark by 1.5% this month, the most since October 2018.

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