Economic Outlook

Value’s Recent Under‑Performance is likely to Reverse Amid Broad‑Based Economic Growth

EM value has trailed EM growth for the past several years

After making a comeback in 2016, value stocks have underperformed their growth counterparts so far this year. Moderating growth expectations, lower bond yields and delayed fiscal stimulus in the U.S. have all played a role. These conditions have favoured growth stocks, which are less tethered to the overall economy. Yet there is reason to believe this is only a pause in value’s resurgence. Value stocks are now cheaper than they have been at any point in the past 15 years and stand to benefit from a rotation to cyclical sectors.

EM value has trailed EM growth for the past several years

What it means for Investors

It’s important to remember that equity-style leadership is cyclical. The last time we saw such value underperformance (2015), we saw a very strong snap back in 2016. We believe now is the time to be contrarian and favour value while valuations remain attractive.

This content is taken from Putting Markets in Perspective, a quarterly guide to the global economy and markets highlighting PIMCO’s current investment views.

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