When Will Value Shine Again?
Jeroen Blokland | Feb 07, 2020 08:34
Today’s chart, this time by Capital Economics, is again a reflection on how value stocks are really cheap. In fact, apart from the 1990s internet bubble, growth has never been so expensive relative to value as it is now.
The lower panel of the chart shows that there is a clear negative relationship between the valuation of growth stocks relative to value stocks. With current valuation as a starting point, value should significantly outperform growth in the next two years or so. Most of the time, though, a trigger is required to unlock that relative value. And unfortunately, one of the triggers could be a broad sell-off in equity markets, which would be likely to hit growth stocks the most.
A more friendly trigger would be a gradual rise in (real) rates. And while this is not that unlikely, the patience of value investors may be tested even more.
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