亚洲量化策略：亏损股的回归——我们认为这类交易仍有空间

Asia Quantitative Strategy: The return of unprofitable stocks -We believe the trade has legs Unprofitable stocks are back -after 4yrs of the bubble bust of 2021, unprofitable stocks areagain outperforming the market since Apr 2025, up 32% vs. market +23% vs. profitablenames +22%. Many investors have questioned this rally, especially with the increased Rupal Agarwal+65 6326 7641rupal.agarwal@bernsteinsg.com Cheng Zhang, CFA, CQF+852 2123 2636cheng.zhang@bernsteinsg.com Unprofitable stocks, typically a trade for 1yr-2yr led by expensive names:Over thelong-term, unprofitable stocks have underperformed profitable stocks by a huge margin(4% CAGR vs. 10% CAGR since 1999). However, in the last 10yrs, unprofitable cohorthas given alpha opportunity for 1yr-2yr such as in 2016-2018 and 2020-2021. Splittingthe unprofitable cohort into expensive (PS>5x) and less expensive (PS<5x), we note thatexpensive unprofitable stocks give more consistent outperformance - the last cycle lastedfrom mid 2016 to 2021, delivering 6%pa alpha. This time also, expensive names startedoutperforming since 2022, up 46% relative to the market while cheaper unprofitablestocks are down -13% vs. the market. Currently, there are far less number of unprofitable Expensive unprofitable stocks, a source of alpha erosion over 3yr-5yr period.Companies finding it difficult to turn/remain profitable in recent years:While expensive unprofitable stocks lead on the way up, they do so on the way down too.Historically, on an average more than 70% of unprofitable stocks ended up underperforming over the next 3yr-5yr period, down -8% to -11% relative to the market.Expensive unprofitable stocks ie. with PS>5x tend to under perform more – deliveringaverage relative returns of -30% to -60% in the next 3yr-5year period. Do note, the risk ofdrawdown tend to by limited in the initial couple of years and the tends have been similar Look for stocks which can deliver profitability in 2yrs. Avoid which cannot:Unprofitable stocks which turn profitable in 2yrs have generated annualized alpha of 20%/16.7% in last 5yr/10yr while unprofitable stocks which remained unprofitable in 2yrshave underperformed the markets by -10%/-9.1%pa. We note, that stocks which breakeven tend to do well over the long-term and even outperform the profitable cohort. Can werely on consensus to find such opportunities? We test it, by taking a group of unprofitablestocks which the consensus expected to turn profitable in 2yrs - while this portfolio UNPROFITABLE STOCKS MAKE A COMEBACK EXHIBIT 1:Unprofitable stocks are back - in post COVID rally, unprofitable stocks outperformed both the marketand profitable companies before the bubble bust of 2021. After 4yrs of under-performance, unprofitable stocksare again outperforming market since Apr 2025, up 32% vs. market up 23% vs. profitable names up 22%. YTD, EXHIBIT 2:Within unprofitable cohort, expensive stockshave always done well. Expensive unprofitable stocksie. with Price to Sales>5x started outperforming themarket since 2022, up 46% relative to the market while EXHIBIT 3:However, over the long-term unprofitablestocks have underperformed profitable stocks by ahuge margin. Profitable stocks have generated alphaover the long-term, though in the last 10yrs, the alpha UNPROFITABLE VS. PROFITABLE STOCKS – WHERE WE ARE CURRENTLY? EXHIBIT 4:Asia currently has 76 unprofitable stocks which is quite below the all-time high peak seen in 2021 with130 unprofitable stocks EXHIBIT 5:Unprofitable stocks currently account for only 7% of total stocks in the index compared to 21% duringthe Tech Bubble and 10% during 2021 peak EXHIBIT 6:38% of current unprofitable stocks have P/S>5x which below the highest peak of 49% seen in 2021,however, expensive unprofitable stocks did reach 42% in Oct 2025 EXHIBIT 8:42% of unprofitable stocks are in Tech andHealthcare sectors while Industrials, Materials andDiscretionary contribute another 38% EXHIBIT 10:As expected, unprofitable stocks in Asia currently are titled towards low quality (79% exposure) andexpensive names (36% exposure) while showing some high vol properties UNPROFITABLE VS. PROFITABLE STOCKS - WHAT DOES HISTORY SUGGEST? EXHIBIT 11:Historically, the underperformance from unprofitable stocks have come over the following 3-5yr periodwhile initial couple of years, on an average there is modest outperformance or slight underperformance EXHIBIT 12:Nearly 60%-70% of unprofitable stocks underperform the markets over the forward 3m - 5yr period EXHIBIT 14:Greater number of unprofitable stocks with P/S>5x tend to underperform the markets 3 years downthe line compared to stocks with P/S<5x EXHIBIT 16:Even in last 10yrs, we see greater number of unprofitable stocks with P/S>5x underperforming themarkets 3 years down the line compared to stocks with P/S<5x EXHIBIT 17:Over last 20 years, around 50% of the unprofitable stocks become profitable in around 21-24 monthsand the ratio remains at 44% by the end of 5yr