These days, there’s a major divergence between value and growth stocks. Equity markets and sectors that are experiencing stable growth are expensive, while weaker markets are cheap.
That’s because people have flocked to companies with predictable and high growth, at the expense of more cyclical value companies, says Luc de la Durantaye, first vice-president of global asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
The reasons are falling commodity prices, the slowdown in China and the overall uncertainty of the global economy, he adds. So, for 2016, look for an inflection point between value and growth strategies. For example, oil prices could reach a bottom, which could trigger a change in the pricing of such stocks.
Consider that “the oil market has changed from an oligopoly to a more competitive market, and the only thing that will force a change in production is for oil prices to fall dramatically,” which may occur early in 2016, says de la Durantaye. Such a dip will “eventually force the weak producers and, finally, we’ll reach a bottom in the oil market. That could be helpful in terms of finding good value at decent prices.”
A word on the Bank of Canada
The BoC is not only dealing with global sluggishness, but also a further decline in oil at the margin, says de le Durantaye. So that’s one element that will surface in this week’s Monetary Policy Report.
“Also, we’ve had weakness in the loonie, but have not seen material pick-up in manufacturing or in the trade balance,” he adds. “All of these elements point to the fact that the Bank could start thinking about making a policy cut, for insurance.”
Overall, “the Bank’s most recent projections were too optimistic, and they’ll have to revise them lower.”
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