(Bloomberg) -- With emerging-market equity valuations 11% lower from a January peak, investors may be expected to hunt for cheap stocks. And given the global growth slowdown, they would probably be buying stable, dividend-paying companies.
In fact, they're doing neither.
While the MSCI Emerging Markets Index, the broader benchmark for the asset class, is little changed since May, two groups of stocks within the gauge are diverging in performance. So-called value stocks -- mature companies with steady cash flows -- are underperforming growth stocks -- upstarts with business potential but weak balance sheets.
The MSCI EM Value Index has declined 4.4% since May, compared with a 4% gain for the MSCI EM Growth Index. That has taken the ratio between them to a 15-month low, according to data compiled by Bloomberg.
This setback for value stocks ceases to be surprising when individual equity performances are considered. Most of the decline in the MSCI benchmark gauge since May has come from banks that are established and mature.
Ten financial institutions are among the 15 worst stocks on the index. One country stands out: India.
India's banking industry has been caught in turmoil over souring loans, with the crisis first emanating from the less-regulated non-bank financial companies such as IL&FS Group. Since then, more institutions have come under investor scrutiny, including IndusInd Bank and Yes Bank. Even healthier financial companies have declined in the Mumbai market because of the slump in sentiment and a domestic slowdown.
Read more about the dismal performance of Indian banks
Five of the 10 worst-performing financial companies on the MSCI index since May are from India.
Given that value stocks typically outperform in a risk-off environment, and growth stocks in a risk-on milieu, the former are missing out an opportunity and may lag even further when emerging markets recover.
| 15 Worst Performing Stocks Since May |
|---|
| Banco Bradesco |
| HDFC |
| Sasol |
| Axis Bank |
| Vale |
| Public Bank |
| China Mobile |
| State Bank of India |
| Yes Bank |
| Saudi Basic Industries |
| Standard Bank |
| Indiabulls Housing |
| National Commercial Bank |
| Itau Unibanco |
| Baidu |
To contact the reporter on this story: Srinivasan Sivabalan in London at ssivabalan@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, Paul Wallace
©2019 Bloomberg L.P.
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