Equity markets give way to inflating pressures

Research Signals - September 2021

After rising steadily for most of the year while Asia Pacific markets remained unsettled, US and developed Europe equity markets finally succumbed to concerns over economic growth from factors such as the spread of the delta variant and rising inflation. Moreover, the global manufacturing upturn has remained constrained by supply chain disruptions and input shortages, according to the J.P.Morgan Global Manufacturing PMI. Yet, high risk shares outperformed in many developed markets, alongside undervalued stocks (Table 1).

• US: Valuation measures continued to be favored, as captured by Forward 12-M EPS-to-Enterprise Value, while Price Momentum metrics such as Industry-adjusted 12-month Relative Price Strength, moved out of favor
• Developed Europe: Undervalued, high risk shares outperformed as gauged respectively by Book-to-Market and 60-Month Beta
• Developed Pacific: Fixed Assets Turnover Ratio was a highly rewarded factor in Japan, while Rational Decay Alpha outperformed in markets outside Japan
• Emerging markets: Investors continue to prefer large cap names, weighing down performance of Natural Logarithm of Market Capitalization

Table 1

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