Thoughts on Current Market Valuations In Asia

This post may be a little late given the run up in Asian Equities we have seen over the last few days, however, I believe that it is useful when investors think about market valuations. Another reason for sharing this post would be over the last few days of meeting with fellow investors, a common question was what are the chances of a recession?

Current Market Valuations
Current Market Valuations

Source: FT.com

Let’s take a look at the chart above. If we were to chart out the Price-to-Book ratio for the MSCI Asia ex-Japan, it fell to 1.27x during September. While markets could go lower than the 2008-09 lows of 1.23x, we see the ACxJ at similar levels of 1.22x in 2003 (SARs episode) and 1.19x in 2001 (Global Recession). While the lowest level during this entire period would be during the Asian Financial Crisis in 1997/8 where it hit 0.94x.

Current Market Valuations – Key Question

The question we should be asking ourselves would be comparing the companies between these periods of downturns, how were the balance sheet of these companies? Were these Asian companies today as leveraged as back then?

If we were to assume that Asian markets are not in that bad a shape as in 1997/8 or even 2008/9, which is pretty much the common consensus, this would suggest that Asian markets are now temptingly cheap.

Sentiment is extremely bearish, approaching levels seen in the depths of previous crises. Three decades of investment experience in emerging markets teaches that panic selling always creates opportunities.

– Richard Titherington, JPMorgan AM CIO, EM & Asia Pacific

Current Market Valuations – Our Thoughts

If asked where I expect the markets to head within the next few weeks, it would really be guesswork. However, if it is for the next couple of years, I would say that Asian Equities definitely offers a very compelling valuation. Personally speaking, I am extremely excited given the number of cheap stocks be it based on assets or earnings appearing in our scope of investments. Truth be told, I would liken my emotions now as of that to a kid in a candy store.