Merrill hæfter sig ved, at mange økonomer, pengeforvaltere og centralbanker undervurderede de konsekvenser, som den finansielle bekæmpelse af pandemien medførte. Nu får vi et økonomisk regimeskifte. Merrill taler om en ny økonomi, hvor value-aktier og producenter af fysiske produkter får en renæssance efter et par år, hvor vækstaktier og en række højteknologiske aktier drønede i vejret. F.eks. ser Merrill en vækst i mineselskaber, da en række mineraler får øget betydning i det elektroniske samfund. Det betyder også, at aktier uden for USA får medvind, fordi value-aktier er mere udpræget i resten af verden end i USA, og det kan føre til en langsigtet svækkelse af dollaren.
New Leaders for a New Economy
Economists and money managers continue to underestimate the macroeconomic regime change sparked by the policy response to the pandemic. In January 2021, the consensus of economists in the Blue Chip Economic Indicators survey forecast that nominal gross domestic product (GDP) would grow 5.4% in 2022. By February 2022, that forecast increased to 8.2%, largely because of the sharp acceleration in inflation that both the consensus and Federal Reserve (Fed) economists
missed by a wide margin.
This new, higher nominal growth environment has also caused money managers to be wrongfooted in their asset allocations. According to BofA Global Research, “funds are underweight Market Leaders.”
That’s because the legacy positions that worked best prior to the pandemic are underperforming in the new macroeconomic environment, with long-duration Growth stocks in the most severe bear market since the 1999 tech bubble popped. These stocks enjoyed their last hurrah when 10-year Treasury yields fell below 50 basis points (bps) in 2020. As 10-year rates subsequently rose more than 150 bps, many of these stocks have been devastated, falling more than 50% as their valuations adjust to the new higher interest rate and inflation world, according to Haver Analytics data.
The revaluing of the market for a new, higher nominal growth economy is driving major rotations as fund managers scramble to adjust their underweight positions in the new market leaders that BofA Global Research analysts recently identified when examining market leaders, defined as stocks that generate the most revenue.
For example, the best performing sub-sector has been diversified metal mining. This sector benefits from the strong global demand in the new high nominal growth environment. It also benefits from the four major rotations currently underway.
Growth to Value
Value stocks in the S&P 500 Index are outperforming the Growth stocks in the S&P 500 Index by 15 percentage points year to date, as Value stocks are re-rating in line with the new, higher nominal growth environment.
BofA Global Research finds that earnings revisions ratios (ERR) have recently declined below 1 due to more downgrades than upgrades. Bucking the negative trend are Banks and Energy companies. Financial and Materials stocks more generally make up the bulk of global companies with the latest ERR above 1 on a three-month basis.
The main positive exception to more upward Value earnings surprises is semiconductors, which constitute the main material building block for the otherwise intangible Technology sector. The material building blocks for the real economy are undervalued and in increasingly short supply, whereas there are fewer limits on capacity in the Technology space, where virtual activity is essentially unlimited.
Most of the physical-world stocks are in the Value realm, while most Technology stocks are in the less constrained, nonphysical realm, where capacity is growing exponentially. In our view, this combination of positive earnings surprises, lower valuations, relative scarcity, and faster revenue growth is a powerful stimulus for the nascent bull market in Value stocks.
Financial to Real Assets
The Fed’s shift to emphasizing growth and low unemployment, with inflation downgraded to secondary status, has caused the fastest, strongest increase in inflation in over 40 years. Financial assets denominated in dollars rapidly losing purchasing power should be shunned in favor of assets that can keep pace with, or even exceed, inflation (such as Metals and Mining stocks).
It’s not a coincidence that home prices rose by the most since the 1970s in 2021. It is also not a coincidence that Commodities were the best performing asset class in 2021 and, so far, again in 2022. While bonds have lost their important hedging benefit because of the rising inflation environment, this is precisely the kind of environment where commodities provide a useful diversification benefit.
Many investors have only limited ability to access commodities as an asset class. For them, Equities that represent ownership of Commodities can serve the same function (for example, metals and mining, food, agricultural commodities, and energy).
U.S. to the Rest of the World
The U.S. Equity market (such as the S&P 500 Index) outperformed the rest of the world (RoW) (such as the MSCI All Country World Index ACWI ex U.S.) during the secular-stagnation era. Mainly this was because the high-flying Growth leaders made up a much bigger share of the U.S. market’s capitalization. The corollary is Value stocks make up a bigger relative share of most non-U.S. market capitalization. Thus, it follows that the global rotation from Growth to Value stocks is
causing the U.S. Equity market to lag behind the RoW.
In addition, inflation is higher in the U.S. compared to its main trading partners, especially China. All these factors argue for a substantial weakening of the dollar in the years ahead. Owning assets denominated in nondollar currencies makes sense in a weak-dollar environment. The Ukrainian crisis has added to the case for inflation beneficiaries. Oil prices over $100 per barrel make it likely inflation will be higher in 2022, not lower, as most economists expect.
