(Bloomberg) -- Goldman Sachs Group Inc.'s chief global equity strategist says that the market is underestimating how strong the economic recovery could be this year, and that cheaper value and cyclical stocks will be the prime winners from this bounce.
“The underlying trend here is pretty clear that we're moving into a period of very synchronized global growth,” Goldman's Peter Oppenheimer said in an interview on Bloomberg TV, adding that he expects 6.5% global growth this year amid supportive monetary and fiscal policies as well as rising commodity prices. “These conditions are still very favorable for cyclicals and value, and we think this has further to go.”
Equities globally slumped last week as investors rotated out of frothier parts of the market, such as technology shares, amid concerns about a spike in government bond yields. However, the retreat in risk assets didn't last long and investors started buying the dip on Friday, with the focus this week shifting to optimism over rapid vaccination efforts and economic reopening plans.
Cheaper, or so-called value shares, outperformed companies with robust growth in February, with the MSCI World Value Index rising 4.5% in contrast to a mere 0.3% gain for the MSCI World Growth gauge. Goldman's Oppenheimer said there's potential for a “big catch-up” in reopening trades, such as travel and leisure, beverages, banks, commodity sectors and transport infrastructure.
“These are all areas that still look cheap and can benefit a lot from the kind of strong pickup in growth we expect from the middle of the year, prompted by the faster roll-out of vaccines, particularly in the U.K., in the U.S.,” he said. High savings rates should translate into a strong rise in consumption as lockdowns get eased, he added.
At the same time, Goldman continues to like some technology companies, but notes that there's less room for upgrades to estimates as these pandemic winners are more vulnerable in terms of valuations to higher bond yields or steeper yield curve, Oppenheimer said.
On the bond market selloff, Goldman's chief global equity strategist said that stock investors will be watching the speed, level and reason behind rising yields. A move up of 40 basis points in U.S. 10-year Treasury yields within a month could lead to negative equity returns, he said. But typically, rising rates and inflation expectations are positive for equities because they reduce the implied risk of recession and deflation, Oppenheimer said.
“If it's a gradual move, I think stocks can do quite well in value and cyclicals also. If it's a very rapid move, then you start to get the problem,” Oppenheimer said. “But if it's a rise in nominal rates and breakevens reflecting stronger confidence in growth and inflation, that's a lot more positive.”
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