Searching for Value When Growth Is King

It’s been a tough road for value investors during the past decade or so, even leading some pundits to declare the investing style is dead. The value-oriented Templeton Global Equity Group is digging in deep—and searching for deep values. While a growth-driven US market rally in the first quarter of this year presented a challenge, the team has uncovered some unloved stocks and sectors—particularly in Japan and Europe—where valuations appear reasonable and prospects good. Tony Docal, Dylan Ball and Joanne Wong take us on an around-the-world tour of where they are finding opportunities today.

A Policymaker-Driven Global Equity Rally

In the first quarter (Q1) of 2019, equities across the globe saw a big recovery from the selloff at the end of 2018. The MSCI All Country World Index was up 12.3% in Q1 2019.1 What drove the rally? In one word, “policymakers,” who switched to a dovish tone. There were fears US interest rates would continue to rise early this year, but the Federal Reserve adopted a more patient approach to policy normalisation and communicated a pause in its multi-year tightening cycle.

In a similar manner, the European Central Bank acknowledged economic risks had moved to the downside and delayed potential interest-rate hikes from sometime in the fall of this year to early 2020.

And lastly, China has also signalled monetary easing and numerous stimulus measures including tax cuts, interest-rate cuts, lower bank reserve requirements and also increased spending. Some of these measures are specifically targeting the private sector as opposed to state-owned enterprises, which could result in increased employment growth.

Of the major markets, China, Hong Kong and the United States were the strongest performers, while markets with more modest structural growth prospects, such as Europe and Japan, were slightly less robust. Overall, emerging markets lagged developed markets during the quarter, but both overall saw solid gains nonetheless.2