‘We have begun reallocating to emerging markets’

Value can still be found in US tech stocks, says ALEX TEDDER, CIO and head of global and thematic equities, Schroders Investment Management. In an interview with Ashley Coutinho, he says long-term returns from global equities have been revised lower in recent years to reflect the impact of falling rates. Edited excerpts: Tech stocks have led the rally in the US. Do you see a bubble in

the making? Optically, large-cap tech names appear overvalued on many metrics. However, it is important to remember that ‘price is what you pay, value is what you get’. Large-cap tech trades at a premium because of its compelling revenue, cash flow and earnings fundamentals. It is also easy to generalise by looking at the multiple for the sector and say all tech stocks are expensive. There is significant variance, and ‘value’ can definitely be found.

S&P 500 has given double-digit returns for 11 years. What are your expectations for the next decade?

The US equity market has been a standout for a number of reasons. First, domestically exposed names have benefited from the expansionary policy, which has supported employment growth, the housing market consumer spending and capital investment. There is little reason to expect this to change. Over 50 per cent of the market’s earnings are derived overseas. Nowhere, is this more apparent than in the IT sector. Composition of the US equity market and its structural exposure to high growth industries is another reason for the strong performance and we believe this can be sustained.

What are your views on emerging markets?

In aggregate, EM equities offer attractive valuations and strong structural growth dynamics. At the same time, a relatively stable US dollar could provide a supportive backdrop on a tactical basis.

However, we do not consider EMS as a homogeneous group. We consider the market of listing secondary to the geographic source of companies’ revenues and earnings.

What about India?

India remains an attractive market for us. We are stock-specific investors. In the aftermath of the pandemic, we were selective on emerging markets, rather focusing on themes in the developed world.

The tilt towards developed markets has to some extent normalised as we have begun to reallocate to emerging markets, including India.