Bargain hunters should take a look at Asia region-related exchange traded funds after Asian equities dipped to a more than two-year low.
According to Refinitiv data, the MSCI Asia-Pacific Index’s forward 12-month price-to-earnings was at 12.6 as of the end of May, the lowest level since March 2020, Reuters reported.
In comparison, the MSCI World index’s P/E stood at 15.3 as of the end of last month, which made the broader benchmark’s valuation premium over the MSCI Asia-Pacific at around 21%, compared to the 10-year average of 14.8%.
The iShares Core MSCI Pacific ETF (NYSEArca: IPAC), which tracks the MSCI Pacific Investable Market Index, currently shows a 13.0 P/E and a 1.3 price-to-book.
“Valuations of Asian equities look attractive compared with those of developed markets,” Zhikai Chen, head of Asian equities at BNP Paribas Asset Management, told Reuters. “We continue to favor high-quality companies with low debt, able to generate sustainable returns with sound or improving ESG profiles.”
Looking across the region, equities of North Asian countries were trading at much lower valuations when compared to other Asian peers.
“South-east Asia is expected to deliver superior earnings growth than its North Asian peers as it benefits from post-pandemic recovery, higher commodity prices, and still relatively accommodative central banks,” BNP Paribas’ Chen added.
Asian markets have been dragged down by concerns over monetary policy tightening measures among major global central banks, elevated inflationary pressures, ongoing supply chain problems, and a spike in COVID-19 cases in China, which triggered broad lockdown measures that slowed production activity across the region.
Some of these ongoing risks remain, so investors should remain cautious.
“We think there are upside risks to yields on sustained inflationary pressures and the Fed’s balance sheet contraction,” Nomura said in a report. “Historically, there has been a modest correlation between yields and (Indian equities’) valuation multiples and a correction to 16-18x remains a possibility.”
For more news, information, and strategy, visit VettaFi.