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Value Opportunities in Asian equities

Updated: Sep 17, 2018



Asian equities offer great opportunities. Asian markets outperformed the US, UK, Europe and non-Asian Emerging markets, as measured by their respective MSCI indices year to date. This makes Asia comfortably the best-performing region this year. Even better, Asian equities are at a significant discount to developed markets. And, when starting valuations are low, they’re well placed to deliver good future performance. As measured by MSCI AC Pacific ex Japan, Asia is still at a 26% discount to MSCI World on a reported earnings basis, down from 30% at the start of year (compared to the long run average since Jan 1995 of 23%). This is, however, not much of a reduction in the discount given the level of their outperformance this year. The reason is that reported profits in Asia have been growing faster than in developed markets. In addition to attractive valuations, Asian equities offer globally competitive dividend yields – making the region attractive for dividends as well.


This year has been a rewarding one for equity investors. Anyone who missed Asian equity appreciation probably wonders if it is too late to join the rally. We don't think it is.


The high returns seen in Asian equities have been led by a better-than-expected and synchronized global economic expansion, which helped companies register better earnings growth. This trend looks set to continue into 2018. Asia is a big beneficiary of a continued recovery in the global economy and a weak USD, which is not expected to pick up much next year by most analysts, will add to the region's advantage.


Even though valuations have gone up, they are only at the levels of multi-year averages at the moment, compared to other asset classes globally where prices are expensive as compared to historical dates. So Asia still remains cheap relative to history and relative to other asset classes


There are plenty of investment instruments to invest into Asian equity markets. I had a look into the Singapore MAS restricted & MAS approved fund lists and came across Guinness Asian Equity Income & First State Dividend Advantage funds that are designed to provide investors with exposure to high quality dividend-paying companies in the Asia Pacific region. The funds considerably outperforms iShares MSCI Asia ex Japan passive ETF. Thus I would recommend using them, as this is clear example of where actively managed funds can offer alpha versus a tracker.


Author: Sergey Yakovenko

Please feel free to contact me with any questions or thoughts on investing in Asia



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