Will vaccine trigger a value rebound?

Australian traders were all too aware that the lift on Wall Street had tapered towards the end of the week’s opening session. Picture: AFP

Value stocks - old fashioned companies that make profits, pay dividends and have long-term performance records - might have finally broken an extended drought with a major bounce following Pfizer’s vaccine announcement.

The ASX had one its more remarkable days in a remarkable year on Tuesday - a day that could set the tone for the months ahead.

Traders virtually split the market down the middle betting big on value stocks such as property trusts, banks, builders and travel companies, while selling off recent “growth” favourites such as IT and consumer finance plays.

Although Wall Street had jumped by as much as 6 per cent at one stage on the back of Pfizer’s “90 per cent effective” vaccine trial, Australian traders were all too aware that the lift on Wall Street had tapered towards the end of the week’s opening session.

They also saw that US futures were showing negative and that’s why the S&P/ASX 200 only managed a 0.7 per cent lift across the board.

But it was individual ASX stock price movements that will have investors reassessing share portfolios from this week onwards.

It is not everyday you get 10 per cent-plus lifts in property trusts and 5 per cent-plus lifts in big bank stocks — but value momentum stirred this week after a long sleep and many believe it is poised to have its day.

The swing back towards the under-appreciated stocks was most obvious among REITs led by turnaround target Unibail Rodamco Westfield with a stunning 44 per cent jump.

But there was also strong support for a range of pandemic-battered REITs such as the Scentre Group and the Vicinity Centres both up around 15 per cent.

A move towards value among big investors comes as many of the world’s leading investment houses are openly questioning how long the “growth at all costs” mantra can run.

As the BlackRock Investment Institute noted in a post-US election research report this week: “We expect the quality style factor and large-cap equities to perform strongly – as they have often done in the past. Large-cap tech stocks have led the post-election rally, yet we note they would face regulatory pressure even under a divided government. We are reviewing our tactical asset views in light of the election result.”

Meanwhile, in the local market, Garth Rossler, chief investment manager at fund manager Maple-Brown Abbott suggests: “Many investors acknowledge that the value style is deeply out of favour and has significant upside when conditions change in its favour. However, given the extended ‘hibernation’ that value has been in, investors are now fearful to call the turn in advance of it happening.”

As value investing finally gets a glimmer of light, the ASX sell offs were similarly predictable and could well be the beginning of profit taking among favourites such as Afterpay, which lost a hefty 16 per cent over the session and closed down 11 per cent. Online retailer Kogan fell 17 per cent. Data facilities group NextDC fell by 14 per cent.

Leading gold miners fell across the board often by more than 10 per cent.

Where does it go from here? Certainly, many analysts are predicting stronger conditions for sharemarkets off the back of a Biden win. The successful distribution of vaccines in the near future might well continue to boost the same value favourites that moved this week.

Perhaps the most important of this group of stocks is the banks. Their massive market presence has restrained the ASX bounce-back this year.

While the ASX is down around 7 per cent for the past 12 months, the rest of the world (MSCI ex-Australia) is up almost 3 per cent.

On Tuesday, NAB put on 7 per cent, ANZ and Westpac 5 per cent each and CBA - the most highly rated of the big four banks, put on 3 per cent.

For retail investors it certainly is not too late to look at value.

As Rossler at Maple-Brown Abbott says: “Value has in many ways become a niche strategy in the face of all-conquering growth. This leaves so much upside for the strategy that when performance does turn, the timing is largely inconsequential.”