Market development from our perspective – May 2023

"Growth or value in times of inflation?"

The inflation rate in Germany was 7.4% in March 2023, compared to 8.7% in the previous months. The question is whether this is an indication that inflation will fall back to 2% to 3% in the medium term. Germany has had virtually no inflation since the mid-1990s. However, the question of inflation expectations is not only relevant for everyday spending, but also for the right investment strategy. Growth stocks were more successful in times of low inflation, while value stocks performed better in times of inflation. The question is whether this pattern will repeat itself.

Growth strategy

The growth strategy relates to entire sectors and companies with high growth momentum in emerging markets, such as digitalisation or high technology. The investor bets that the company’s future profits will rise rapidly, which justifies a higher share valuation. Investors can also generate profits with shares in companies which are still in the red. However, higher price fluctuations should be expected.

Value strategy

The value strategy aims to identify undervalued companies with stable earnings growth and a good market position. Investors look for value stocks which are undervalued compared to other companies. The value strategy requires expertise, experience and careful research in order to identify suitable companies. Value companies often pay a good, steady dividend, which can provide investors with an ongoing income. Warren Buffet has been successful with this strategy and still pursues it today.

Value or growth?

The growth strategy focuses on companies with high growth potential and justifies higher share valuations due to the expectation of rising profits. Value shares, on the other hand, look for undervalued companies with stable earnings growth and a good market position. Both strategies are justified in certain market phases, and companies can switch from “growth” to “value” and vice versa. In recent years, growth stocks have been more successful than value stocks due to low interest rates, strong business models and faster digitalisation as a result of the pandemic.

Current development in growth and value

There has been a rotation from growth to value stocks due to fears of inflation and interest rates, as well as actually higher interest rates. This has led to valuation adjustments, particularly in the Technology segment, caused by higher interest rates and the discounting effect. The accumulated excess of growth stocks in portfolios has been adjusted through reallocation, and the money has now flowed into value stocks, which are not yet too expensive and are usually not so highly indebted. Another option is to combine both approaches by investing in actively managed funds.

Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.

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Adress

FiducInvest Holding Pte. Ltd.
10 Marina Boulevard
Level 39, #39-00
Marina Bay Financial Centre
018983 Singapore

You are currently viewing a placeholder content from Google Maps. To access the actual content, click the button below. Please note that doing so will share data with third-party providers.

More Information

Contact

Newsletter

Phone: +65 6725 6330
Fax: +65 6322 0808

© 2024 FI Group all rights reserved