The ratio of value to growth is highly correlated to 10-year yields, and also 30-year securities. That means that as longer-dated rates have risen, growth stocks have lagged.
That’s not to say MLIV readers are going all-in on cheap-looking risk assets. Far from it. Almost two thirds expect developed-market stocks to outperform developing peers this year.
That’s even as the asset class looks relatively cheap. The blended 12-month forward price/earnings ratio on MSCI’s emerging markets index is far below its five-year average, whereas the same gauge for developed-market stocks is almost in line.
A bet on the MSCI Emerging Markets Index, which no longer includes Russia, is a wager on China -- accounting for 31%. Yet economists tracked by Bloomberg have cut their forecasts for the nation’s growth to 5% for this year, which would be the slowest expansion since 1990, barring the 2020 pandemic. And the intensifying Shanghai lockdown and rising commodity prices could lower those forecasts further still.
All told, a plurality of 594 respondents expressed a clear preference for Brazil. This isn’t surprising, given the country’s 23% return in dollar terms this year. It enjoys relative insulation from the negative effects of the Ukraine conflict and yet garners upside from higher commodity prices. A decent number of votes for South Africa and Indonesia tally with this theme.
China got about 19% of the valid responses. At first glance, that may seem positive given the near 25% loss so far this year for MSCI China, but it’s actually fairly poor given the country’s 28% weighting in the MSCI Emerging Markets basket. India at 12% was in third place, in line with its benchmark weighting.
--With assistance from Alyce Andres, Stephen Kirkland, Wes Goodman, Tomoko Yamazaki and Eddie van der Walt.
This article was provided by Bloomberg News.