Investors need to look at value in a new and different way says BlackRock global chief investment strategist Russ Koesterich.
Koesterich argues reasonable is the new cheap in the light of elevated valuations in global equity markets.
In particular Koesterich points out stocks have not followed the typical risk-off “script” with defensive stocks showing signs of struggling.
He says: “This seeming disconnect between investor angst — evidenced by a sideways stockmarket, rising volatility and selling of high yield bonds — and a proclivity for more exotic markets can be reconciled fairly simply: Investors have a new found interest in value.”
For instance, Koesterich points to investors turning to emerging Asia stocks which despite being still above bargain levels last seen in 2008 are still trading at 30 per cent discounts to developed markets.
Koesterich says: “In short, at a time when most of the major asset classes look somewhere between fully valued and expensive, investors are being forced to look further afield in search of value and yield. Put differently: In a world where most investments look expensive, reasonable is the new cheap.”