Asian stock valuations decline to near 1-1/2 year low

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(Businesshala) – Asian equities valuations fell to a 17-month low in late October on concerns over China’s weak economy and analyst upgrades to earnings estimates this year failed to boost equities.

FILE PHOTO: A truck drives between shipping containers at a container terminal at Incheon Port in Incheon, South Korea, May 26, 2016. REUTERS/KIM HONG-JEE

The forward 12-month price-to-earnings ratio (P/E) for the MSCI Asia-Pacific index fell to 14.59 at the end of October, the lowest since May 2020, Refinitiv Eikon showed.

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The MSCI Asia Pacific Index declined 0.6% this year, compared to the MSCI United States Index’s 24.5% and the MSCI World Index’s 17.4%.

“Asia weakened US equities again as major central banks weighed local factors despite reinforcing the message that policy normalization would be slow and gradual,” Nomura said in a report this week.

(For a graphic on the PE of the MSCI Asia-Pacific and World Index:)

Last year, Asian stocks were boosted by sustained earnings upgrades by analysts as they expected a strong turnaround after the lockdown on corporate profits.

However, analyst upgrades this year have failed to boost regional stocks.

“Strong earnings over the past two quarters have failed to enthuse the market as EPS estimates have stabilized following a V-shaped recovery over the past year,” SockGen said in a report last month.

(For graphic on country wise analysis for estimate changes over the last 30 days:)

Earnings from Asian firms so far showed 51% of companies missed their analyst forecasts for the third quarter, compared to the global average of 40%.

Hong Kong, Chinese and South Korean shares were the cheapest among Asian stocks, with P/E ratios of 10.3, 10.5 and 10.6 respectively, the data showed.

(For a graphic on the valuation of Asia-Pacific equities:)

However, MSCI Asia-Pacific’s forward P/E was still higher than the 10-year average of 13.03, the data showed.

“We do not believe that the undervaluation of emerging market (EM) equity indices relative to developed markets (DMs) is a reason to expect EM equities to outperform over the next few years,” Capital Economics said in a report.

“While economic growth in developed markets remains fairly strong as they continue to open up, we think China’s economic slowdown has a long way to go.”

(For a graphic on the change in forecast for the MSCI Asia-Pacific Index:)

Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Shailesh Kuber


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