Growth-Value Rotation. The latest attempt was predicated on expectations of a “blue wave” in the US election, which failed to materialize. But a vaccine may succeed where hopes of a large fiscal stimulus did not, namely, by delivering a sustained and faster-than-previously-thought recovery in growth, employment and inflation. All this points to higher yields. Growth-Value rotation would make the equity rally more sustainable. While the Growth-Value rotation should redefine leadership among sectors, it could at the same time help unlock some more upside for the whole market. We have long argued that Tech needed a bubble to continue performing as it has done in 2020. Since Value sectors are trading at significantly lower multiples than IT, they appear to have much more headroom for further gains. To access these research notes register for trial access.
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What does the great rotation mean for countries’ economies? Is it simply a case that those most affected by the virus will also recovery the most? This is not simply a case of mean-reversion. Take Mexico for example: hurting from a 10% growth contraction ytd, and with poor existing COVID infrastructure, the vaccine could bring much-needed relief.READ ME
The IMF says the world is in a “liquidity trap” and fiscal policy is the way out. Yet, if governments will not do provide the necessary stimulus, central banks are not totally out of ammunition. They could engage in quasi-fiscal operations, using their balance sheets creatively and destroying their equity. We look at their options, including dual interest rates and digital cash transfers.READ ME
The Regional Comprehensive Economic Partnership (RCEP) – the newly agreed Indo-Pacific FTA– will firmly anchor trade and standard-setting power in East Asia. The 15 member countries account for 42% of global manufacturing value added and 30% of GDP. Though less ambitious than other recently concluded FTAs, RCEP is a significant improvement on current rules governing regional trade and investment.READ ME
Equities were already priced for a vaccine, but the certainty of an effective one should limit downside risks in the near term.
- We upgrade our equity market view to neutral on Covid-19 vaccine data
- EPS downside risk reduced, but rising yields should lead to lower p/e
- Growth-to-Value rotation back on, making future gains more sustainable
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