Rudi’s View: Value Ready For Catch-Up

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 19 2020

Dear time-conscious investor: Fresh developments and investor optimism now favour Value over Growth & Quality

In this week’s Weekly Insights:

-Value Ready For Catch-up
-Conviction Calls

Value Ready For Catch-up

By Rudi Filapek-Vandyck, Editor FNArena

Nothing lasts forever, in particular not in financial markets, or as I like to put it: this too shall pass, eventually.

With “this” I am referring to the relentless, and extreme, bifurcation of equities into “winners” and “losers”, with very few shades of grey in between, certainly since the arrival of the pandemic.

Before the virus hit economies and life as we knew it up until that point, many a market expert had already observed the distance between “popular” and “unpopular” had probably never been recorded as wide as it had become.

Since the arrival of the virus, however, the distance between the two opposing categories of equities has only widened further.

Now we really can conclude the gap between Winners and Losers, Growth & Quality versus Value and Cyclicals, might have never in the history of financial markets been pushed out as far as it has in 2020.

Just about every market researcher has published a chart to illustrate equity markets’ extreme polarisation in recent years, and many of them are updating the data this month.

The example I picked below is from Morgan Stanley. It shows how much further the elastic band has been stretched; much, much further than at any other point over the past three decades.

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The theme of share market polarisation is far from new.

The current dynamics favouring Growth & Value started during the GFC, initially in the US where the origin of that crisis -housing and finance companies- gave way to global tech giants and emerging new technologies.

Australia caught up after the euro-crisis of 2011/12. First gradually, then relentlessly with companies such as Xero ((XRO)), Afterpay ((APT)) and NextDC ((NXT)) climbing up the rankings of the ASX200, while large cap energy producers, the banks, and property owners ended up as the proverbial ball-and-chain throughout the elongated bull market.

It has been a torturous seven years for many an investor who likes to pick up “cheap” looking value stocks, with rather brief periods of relief along the way. Which is but one reason as to why many today are looking forward in full anticipation.

Could it be? Can 2021 finally bring the turnaround that switches market momentum from expensive looking winners into the beaten down cheaply priced stocks in markets?

The chart above suggests such a narrowing of the gap, at the very least, is long overdue.


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