Using Macroeconomic Indicators to Allocate Between Chinese Equity Styles

Summary

This report examines whether changes in economic growth, inflation, interest rates, and risk premiums can help guide allocation among value and growth stocks and among large-, mid-, and small-cap Chinese equities. It uses GDP growth, CPI, the ten-year government bond yield, and an equity earnings-yield measure minus that bond yield. Each indicator is reduced to the direction of its period-to-period change. Style comparisons are separated by market capitalization because value-versus-growth performance varies with size.

Key ideas

• The report compares value and growth within large-, mid-, and small-cap groups.
• It represents macro conditions with GDP growth, CPI, the ten-year government bond yield, and an equity risk-premium proxy.
• It uses the direction of each indicator’s change rather than its level.
• The reported patterns associate stronger growth with value and large-cap outperformance.
• Interaction tests suggest that some macro effects persist after controlling for style and size.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.