The challenge of stubbornly high inflation which has forced central banks to accelerate policy tightening is crafting a conducive backdrop for value stocks, adding thrust to the rotation away from growth companies that underscored a chaotic first week of trading.
The low interest rate environment enjoyed by equity markets over the past five years has seen the MSCI World Growth Index return 21.3 per cent annually, including dividends, outperforming the MSCI World Value Index’s 9.8 per cent. “This [current] environment is supportive of value companies and we expect cyclicals to do well in this market.”
“The lower earnings growth expectations in 2022 and margin pressure from higher frictional inflation risk emphasises the need to focus on companies with superior pricing power, lower downside margin risk and more consistent growth profiles,” said senior portfolio manager at Martin Currie, Zehrid Osmani.