GROWTH STOCK ASSETS -ITS TIME FOR THEM & NOT FOR VALUE

 

If you are wondering to figure out where the growth proposition of investments or model portfolio construction will come up then you must read this article. The article will throw extensive light for the Fund Managers, Analyst and for all those who are into the model portfolio construction.   The pandemic has changed the market from value to growth proposition model and you need to shift your focus towards the same. The global economic recovery, particularly the Developed economies will be faster and would more stable for at least the next 2 years.  We find banks stocks and valuations are intact and well protected as compared to what we all have seen in 2008.  Indian economy all those Asian economies have weak balance sheet will struggle whereas the developed economies growth will be faster. The recent programs would not be creating any recessionary or banking sector collapse on the global map. The way the economic packages have been developed and the strength of the global banking system cannot be ignored. Global asset class value proposition has now shifted from value to growth.   We find a change of asset allocation preference on the global context moving from 60% Equity and 40% Debt to more Equity increased allocation. Conservative portfolios will move to 60% Equity and 40% Debt as generating debt yields will be coming under control.

It's being found that global model portfolios will shift from value to growth as the same is fuelled by liquidity which is going to be in circulation for a prolonged period.  The downturn of the global economy is completely different from the 2008 GFC since the way governments have framed the polices. The major part of the equity portfolio will be tilted towards G-7 nations and less towards the emerging economies like India which will struggle compared to the developed economies. Coming to the sectorial aspect of growth vs value it's being found that where the Bank Guarantee is provided those sectors and asset class will perform stupendously as compared where they are not provided. This leads to another point discovery that key growth areas of the sector are already defined and investors’ money will chase them with blind faith.

When we look towards the developed economic policies to fight against the slowdown of the pandemic it's being found that these policies are highly different compared to what was in the 2008 GFC case.  For example, the U.S incentivised to re-hire under the Paycheck Protection Programme (PPP). More than this programme the basic underline principal protecting the recovery to a faster speed is the bank guarantee provided by the government of the developed economies?

Coming to Europe is being found that the so-called BBLS scheme, more commonly referred to as “bounce bank loans”, has accounted for most of the growth in bank lending in Britain this year. the so-called BBLS scheme, more commonly referred to as “bounce bank loans”, has accounted for most of the growth in bank lending in Britain this year. These are all 100% guaranteed by the Government. Banks are having zero risk weight on all these disbursements.

 Another part of the world –Australia where the so-called Coronavirus SME Guarantee Scheme is supporting up to A$40bn of lending to SMEs, with the Government guaranteeing 50% of new loans. Starting from 1 October under the second phase of the scheme, loans can be up to five years with the maximum loan size increasing to A$1m.

 All lending to the corporate sector and small and medium enterprise are all guaranteed by banks. This has helped to write off the Pre COVID impacts also. The biggest advantage of  all these programmes is that they will not be so easily withdrawn and the money has been given in the pockets of the Industries or people and nothing like QE of 2008 where bad asset buyout programme took a prolonged phase of period. These packages increase the money supply and liquidity within the system and circulation of capital within the economy is kept alive.

Those who are trying to make single guesswork on the global banking system strength well the journey form 2008 have made them stronger. The several factors like the core capital (tangible common equity, or TCE) held by most of the global banks was practically double that held at the end of 2008, at 13.6% of risk-weighted assets and almost 7% of tangible assets. In fact, in risk-weighted terms at least, Common Equity Tier 1 (CET1) capital in advanced economies is likely higher than at any time since the concept was formalised by the first Basel accord of 1988. The story does not end here. Over the last 10 years, banks around the globe have generated about $6 trillion in common equity and around half of this has been retained. If you remember bonuses, dividends etc were stripped off from the bank's books in order to get them in good shape. The shareholder sacrifices have played the trick. Banks have created optimised balance sheets, capital ratios have raised followed with protection for the bondholders.

Asset growth happens faster and value proposition based portfolio construction shifts from these inflexion points. The global economy has already come out of the Deflation point and inflation is soon going to change the decades-old struggle for many economies.  This gives a major thrust to the global asset class performances. Portfolios need to be shifted more towards growth rather than value. When protected capital chases asset class the growth proposition amplifies where value is ignored since the value is long term game.  Coming to India we don’t find such triggers hence we cannot comment on the same. The pain for weak and struggling Emerging economies will be more. The only saviour will be the growth of the developed economies and how the Indian government frame policies to get a pie of the developed economics growth and come out of the struggle of a pandemic lead slowdown. India has been struggling with financial scams and frauds followed with the collapse of the IL&FS.