Schroders Equity Lens June 2025: your go-to guide to global equity markets
What would stagflation mean for equity investors?
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The June 2025 edition of the Schroders Equity Lens is now available: Schroders Equity Lens
Worries are growing about the risk of stagflation (high inflation + low growth)
Using data since 1926, we find that equities perform worse during stagflation, but still roughly match inflation, on average (slide 6). They have outperformed cash more often than not in these environments.
Sectoral performance has been mixed in stagflation-years. Judgement is required as the current situation is not like many past episodes (slides 7-8).
History + judgement: US/Japan look exposed to stagflation risks, Europe/UK currently more interesting propositions (slide 9).
Stagflation would likely drive increased variation in performance at the company level, creating opportunities for active managers to outperform. Balance sheet resilience and pricing power will be important
Investors today should arguably demand an increased risk premium to invest in US equities, given greater uncertainties
- Since 2014, the market has priced a much lower risk premium for US equities than European ones. Before that they were comparable (slide 11).
- The Europe vs US valuation gap has narrowed as Europe has outperformed, but remains wide (slides 13, 16, 29, 30)
- Value investing has paid off in emerging markets, even as it has struggled in developed markets (slide 18)
Note that we will be publishing a research article on equities in a stagflationary environment, with additional detail, soon.
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