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Is growth still the place to be in EM equities?

Growth stocks have traditionally outperformed their value counterparts in fast-growing emerging economies, and fund selector preferences are aligned accordingly. But does this still make sense in the context of decelerating EM growth and a change from export-led to consumer-led growth?


PA Europe

Expert Investor Europe has been polling fund selectors for a couple of years now, and in most countries they have consistently had an inclination towards growth stocks. Investors should ask themselves the question, however, whether it actually makes sense to distinguish between value and growth stocks on the long term.

“Many of the former, cyclical growth companies in the commodities and industrials sectors have now become value companies, while the new growth companies are consumer-related companies,” says Stephen Russell, manager of the Lazard Emerging Markets Core Equity Fund.

The Benelux prefers value

Our most recent data, collected in 13 European countries over the past eight months or so, show that the preference for growth stocks is still widespread. Only in the Benelux countries, which have a preference for value, and in Spain, where growth and value fans are approximately equal in numbers, the picture is different.

Russell (pictured right) believes investors mustn’t take value or growth investing as a starting point and should instead focus on creating portfolios which can perform better than the index in all market conditions. However, he admits they often inadvertently end up being biased towards one or the other. “Historically we try not to be tilted to any factor, but at the moment the companies in our portfolio have on average lower net debt than the the index, and their return on equity is higher,” he says. “So because of this quality element, we now have a growth bias.”