Chart of the week: a new low for value stocks

Chart of MSCI world value index vs MSCI world growth index

Over the very long term, value stocks (those that trade at lower valuations than the wider market) have tended to beat growth stocks (those that trade at higher valuations). However, in the shorter term, growth stocks can do better than value stocks for sustained periods – and that’s been the trend for around a decade now.

The outperformance of growth has been so great since the eve of the global financial crisis that the MSCI World Value index is trading at its lowest level relative to the MSCI World Growth index since the peak of the dotcom bubble, says Justina Lee on Bloomberg. That point marked the start of a boom in value stocks – they beat their growth peers by 50% over the next 12 months. Will it be the same story this time?


Viewpoint

“The Fed’s decision [to cut rates] was an error because lowering already negative real interest rates will further feed speculative and unproductive investments and exacerbate financial instability. While there are legitimate signs of an economic slowdown both domestically and abroad, lowering interest rates is the wrong cure. Growth is slowing partly because of trade tensions, but primarily because economic actors must devote increasing amounts of capital to servicing exploding debt burdens … US companies are more bloated with debt than before the Great Financial Crisis and they are increasingly forced to deal with their growing debt burdens. If business activity slips, they are in trouble … Many companies need to focus on keeping their lenders happy, which limits their ability to grow their businesses.”

Michael Lewitt, The Credit Strategist