[Asia Economy Reporter Jeong Hyunjin] There is a forecast that the era of value stocks, which had been overshadowed by growth stocks, will arrive. Amid growing concerns about an economic recession due to high inflation and central banks' tightening monetary policies, value stocks, which have been relatively undervalued, are expected to outperform growth stocks.
On the 26th (local time), the Wall Street Journal (WSJ) reported, citing FactSet and Dow Jones Market data, that the Russell 1000 Value Index has fallen 12% so far this year, outperforming the Russell 1000 Growth Index's 25% decline. WSJ stated that if the value stock index maintains a 13 percentage point lead over the growth stock index at this point, it would mark the largest annual gap since 2001, with value stocks outperforming growth stocks.
Value stocks refer to shares traded at prices relatively lower than the company's intrinsic value, while growth stocks are those expected to have high growth potential and significant earnings, leading to substantial price increases. Looking at recent market changes from 2009 to last year, the Russell 1000 Value Index outperformed the Russell 1000 Growth Index only in 2012 and 2016. For the most part, the growth stock index outperformed the value stock index.
However, this year, as the U.S. Federal Reserve (Fed) and other central banks worldwide have raised benchmark interest rates consecutively, the stock market has frozen, and growth stocks have suffered steep declines. High interest rates are reducing the earnings value of companies classified as growth stocks. Representative growth stocks such as Meta (Facebook's parent company), Nvidia, and Amazon have seen their stock prices drop by 49%, 42%, and 30%, respectively, this year.
Given this situation, there is a forecast that value stocks, which had not received much attention, will yield higher returns than growth stocks over the next 3 to 5 years. Cliff Asness, founder of the U.S. hedge fund AQR, and Rob Arnott, founder of the investment advisory firm Research Affiliates, recently emphasized the growth potential of value stocks.
Founder Asness said he believes value stocks will grow over the next 3 to 5 years because they are still cheap. AQR, managing assets worth $117 billion (approximately 151.6 trillion KRW), has focused on value stocks since the end of 2019. AQR's total return recorded 52.5%, showing a significant difference from the S&P 500's total return (-12.8%).
Founder Arnott said that value stocks are in the early stages of outperforming growth stocks and predicted that the next 10 years, especially the next 3 to 5 years, will be tremendous. He said, "When value looks very cheap, rapid recoveries are often powerful and fast," adding, "We will clearly see this happen this year."
WSJ reported that this year's growth in value stocks was driven by a surge in energy stocks. ExxonMobil's stock price rose 42% this year, and Chevron also increased by 23%. Founder Arnott said he is currently overweight in energy stocks but plans to gradually reduce this exposure. Berkshire Hathaway, a representative of value investing, has also significantly increased its energy stock holdings.
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