Markets sat between bull and bear market: Platinum

Platinum International’s fund managers have highlighted the underperformance of growth stocks amid the inflationary environment.

The decade-long bull market that pushed tech stocks and other growth assets to ever-dizzying highs could be on the brink of turning into a bear market, Platinum International’s managers have warned.

For much of the period since the Global Financial Crisis (GFC), growth stocks had led the market as low inflation and low interest rates made investors more willing to pay up for future earnings.

FE Analytics shows the MSCI AC World Growth index has posted a 318.8% total return over the 10 years to 9 March, compared with a gain of 189.9% from the MSCI AC World Value. Much of growth’s performance was driven by tech stocks: the MSCI AC World Information Technology index rose 627.2% over the same period.

In their latest update, Platinum International co-managers Andrew Clifford, Clay Smolinski and Nikola Dvornak said: “In recent years, the dominant theme in markets could loosely be termed ‘disruption’. Aided by record levels of liquidity, this has fuelled an ever-increasing divide between ‘growth’ and ‘value’, which we have likened to 1999”.

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Performance of growth and value stocks by calendar year

Source: FE Analytics. Total return in AUD

As the chart shows, growth beat value in almost every year since the GFC, but this trend came undone in 2021 when the market started to worry about the impact of higher inflation and interest rates.

The prospect of higher interest rates made investors question the amount they were willing to pay for the future earnings of more speculative growth companies, the Platinum managers explained.

They pointed to the performance of tech stocks over the past three months as illustrative of this. The MSCI AC World Information Technology index has fallen 20% during this time, while energy stocks – which fall into the value category - are up 18%.

“To describe where we are today, we may be somewhere between the ‘end of the bull market’ and the ‘beginning of a bear market’. It is worth noting that in a bear market, we tend to see 50-80% of the bull market retrace as liquidity and the narrative change direction,” Clifford, Smolinski and Dvornak said.

“The good news, though, is that the market has been bifurcated and while there are areas of speculation, there remain some very interesting propositions which we might term loosely ‘growth industrials’ or perhaps ‘decent cyclicals’. These include meaningful exposures to decarbonisation, semiconductors, travel, Chinese consumers and industrial efficiency.”