Sector rotation was one of the highlights of the stock market adjustment earlier this year. A significant downward adjustment finally appeared on the growth stocks after a period of prolonged gains while some cyclical value stocks experienced a long-overdue rebound, thereby narrowing the valuation gap between growth and value stocks.
How should the investors evaluate growth stocks? There is no simple answer to this, because it relies on the actual growth potential of the stock.
For example, there are negative impacts to some internet companies after the introduction of anti-monopoly law in China. Since the rise of these stock prices during the past two years was not solely based on profit growth, but also factored in the increase in valuation.