Growth-Value Leadership Diverged Regionally After Russian Invasion

For markets, Russia’s build-up of military forces along its border with Ukraine last November reinforced the growth-to-value style-factor rotation across global and regional equity markets that began in late 2020. Following Russia’s invasion on Feb. 24, 2022, growth started to outperform value in the U.S. and Europe, but the growth-to-value rotation continued in emerging markets (EM).

What drove this persistent underperformance of growth relative to value in EM?

Performance attribution, based on MSCI’s Barra Emerging Markets Equity Model (EMM1), shows that style factors, compared with country and industry factors, were the predominant drivers of the relative performance of value and growth, prior to and after Russia’s invasion.

More specifically, from Nov. 30, 2021, to Feb. 23, 2022, country, industry and style factors explained 0.1%, -0.8% and -6.3% of the -8% growth-value relative performance in the EM (based on the MSCI EM Growth and MSCI EM Value Indexes). Post-invasion through March 29, 2022, country, industry and style factors explained 0%, 0.3% and -1.8% of the -2.4% growth-value relative performance.