Asian region-related exchange traded funds are a cheap play for global bargain hunters as valuations for Asia’s equity markets dipped for a third consecutive month in June, touching their lowest level since the start of the COVID-19 pandemic.
According to Refinitiv data, the MSCI Asia-Pacific index’s forward 12-month price-to-earnings ratio was at 12.1 as of the end of June, or the region’s cheapest valuation since March 2020, Reuters reported.
In comparison, the S&P 500 was trading at around a 16.5 P/E and a 3.0 P/B.
The iShares Core MSCI Pacific ETF (IPAC), which tracks the MSCI Pacific Investable Market Index, currently shows a 12.4 P/E and a 1.2 price-to-book, according to Morningstar data.
“Concerns about earnings, downgrades, and rising cost of capital have driven down valuations, though earnings estimates, we feel, are close to bottoming out,” Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, told Reuters.
Analysts have downwardly revised the MSCI Asia-Pacific Index’s forward 12-month earnings projections by 2.97% over June, compared to a 0.85% upgrade in May.
“The fact that Asian earnings estimates have already been downgraded, and therefore are likely to remain relatively stable relative to their DM counterparts, convinces us that the “cheap-looking” valuations are actually cheap,” BNP Paribas’ Raychaudhuri said.
Among the cheapest Asian markets, the P/E ratios of South Korea, Hong Kong, and Taiwan equities were at 8.48, 9.94, and 10.02, respectively.
ETF investors can use something like the iShares MSCI South Korea Index (EWY), iShares MSCI Hong Kong ETF (EWH), or iShares MSCI Taiwan ETF (EWT) to target these Asian markets.
Meanwhile, Chinese shares’ P/E ratio jumped to 10.08 from 9.38 month-over-month after COVID-19 restrictions eased.
“Unlike the rest of the global economy that we expect to slow down in 2023, China’s economy/corporate earnings will likely see a recovery aided by greater support in the form of fiscal/monetary policies,” Nomura said in a report this week.
ETF investors can look to options like the KraneShares Bosera MSCI China A Share ETF (KBA) or the Xtrackers CSI 300 China A-Shares ETF (ASHR) to access mainland Chinese markets.
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