Profitability and flow value should be effective for 2H 2013
We expect profitability to remain effective in 2H 2013 and we also see
potential for a recovery of value effect, which was weak in 1H. Among
value factor strategies, we believe flow, which reflects earnings revisions
(P/E) would be superior to stock value strategy (P/B).
Stock value recovery requires better macro sentiment
A stock value recovery would require a better sentiment in commodity
prices, which was one of the causes of value underperformance in the bull
market from December 2012, and easing of concerns over China/EM risk.
We believe it is too early for that. However, we would prepare for an
inflection point by watching for valuation spread and long-term return
reversal effect.