A long-running bout of underperformance for some of the most unloved stocks in Asia-Pacific could reverse once the current economic cycle ends, according to JPMorgan Chase & Co.
Investors “should remain open-minded” to the potential for a sustained period of outperformance for value stocks, particularly those that generate high yields, analysts including Asia equity strategist Mixo Das wrote in a research note dated June 28.
“Value not working has become investors’ default assumption,” the note said. “Currently value appears cheap, is uncrowded, and suited to the reduction in risk pricing underway.”
Amid a poor year for style factor investing, strategies based on buying the cheapest stocks in the market have been trounced by buying those priced for growth. Sanford C. Bernstein last month abandoned a call for value to outperform just two months after it was initiated.
A “mediocre” macro environment is the biggest reason for value’s poor performance over the past decade, JPM’s analysts said.
“While 10 years of underperformance is indeed a long time, one should keep in mind that we have not had a global downturn in an equally long period of time,” the note said.
It added that a combination of the following conditions were needed for value to rebound in Asia:
• Regulations that foster competition
• Sustained acceleration in growth
• Or a “proper cycle reset” such as a “full-blown recession” — Bloomberg