This will potentially lead to “a violent rotation” among certain asset classes and a shake-up within equities, according to Ronald Temple, co-head of multi-asset at Lazard Asset Management in New York.
“You can expect to see pressure on speculative growth stocks, companies whose cash flows are determined by expectations far into the future – where higher discount rates can have a major impact – compared to businesses that have higher current cash flows,” he said.
The rotation into value has been well underway since the start of the year, dampening the boom in technology stocks triggered by the pandemic. So far this quarter, the outperformance of value stocks over growth stocks has been the strongest in more than 20 years.
A key driver of the shift to value stocks is the belief among many investors that inflation has gained enough momentum to keep rising, which has convinced central bankers to move faster to undo historic levels. stimulus.
As U.S. stocks rose on Thursday on Russia’s move on Ukraine, the Nasdaq Composite Index’s nearly 14% drop this year signals safe-haven hunting and caution on equities. growth stocks.
Russia’s attacks on Ukraine and the subsequent imposition of sanctions by the West have fueled these global price pressures, raising fears of supply shortages affecting a range of products from grain to natural gas.
The shift in favor of value comes as US hedge funds have reduced their positions in tech stocks. They entered 2022 more inclined toward cheaper stocks than at any time in more than a decade, according to Goldman Sachs Group Inc.
“In my opinion, investors would be well served if, A) they focused on value over growth, especially over the past 10-15 years. And B) as part of their growth allocation, to focus on quality,” Lazard’s Temple said.