Forget all the talks of value versus growth that we have heard to exhaustion over the last few weeks, and welcome to the brand-new pinball-style, Fabiana Fedeli writes in her essay on finews.first.


This article is published on finews.first, a forum for authors specialized in economic and financial topics.


In a world of binary outcomes, markets have been bouncing off tweets in whichever direction makes more sense at the time. The trade deal is on, equity markets are up and risk-on trades outperform; the trade deal is off, equity markets are down and turn more defensive.

Neither the outperformance of value nor the outperformance of equity markets outside of the U.S. have been too convincing. This is not surprising, as global growth and earnings continue to deteriorate, with earnings revisions worsening across all major regions.

Therefore, for either value and equities outside the U.S. to show a more convincing outperformance, we need to see some macro improvements or at the very least some positive news on the trade front that would make those macro improvements more likely.

«They just need a trigger»

However, in this apparent see-sawing madness, one thing that these latest market movements have shown us is that investors are ready for a change. They just need a trigger.

A phase 2 of a trade deal would most likely spur emerging markets and Japan further and, unless Brexit were to end in a mess, Europe would also follow. U.S. equities would underperform and within markets, risk-on trades including value and cyclicals would finally be in favor again.

The binary outcome is reflected in our invest five-factor outlook, which is now neutral for both developed and emerging equity markets. The neutral conclusion indicates that the pinball could bounce off the next set of tweets and news flow in either direction.

«A trade deal now does not solve what is likely to be long-term strategic tensions»

Yet, while the news outcome might well be 50:50, the risk-reward is asymmetric. Markets outside the U.S. have already priced in a lot of uncertainty, and earnings growth (or lack thereof) is now at levels that do not justify the wide disparity in valuations.

What we can tell is that the pinball is eager to bounce off in one direction. Needless to say, a trade deal now does not solve what is likely to be long-term strategic tensions between the U.S. and China. These will likely remain for the foreseeable future, as the competition between the two countries and technology security will be long-term issues.

«One thing is for sure»

Yet, it is difficult to see now any measures that could have the same crippling effect on global growth than up to 25% tariffs on more than $650 billion in US-China bilateral pinball machine take equity markets next.

One thing is for sure if they flip equities in the direction of positive outcomes, market dynamics are ripe for a game-changing bounce.


Fabiana Fedeli is global head of fundamental equities and portfolio manager in the emerging markets equities team where she is responsible for portfolio construction and country allocation. Prior to joining the Dutch asset manager Robeco in 2013, she was a portfolio manager Asian equities at Pioneer Asset Management and at Occam Asset Management. She began her career in the industry at ING Barings Tokyo as a research analyst Japanese equities in 1999. She holds a Master's in Economics from Hitotsubashi University in Tokyo and a Bachelor's in Economic and Social Sciences from Bocconi University in Milan.


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