Asia-Pacific equity market is undervalued, says Eastspring Investments

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KUALA LUMPUR: The equity market in Asia-Pacific “looks very cheap” compared with the United States and Europe based on the price-earnings ratio and price-to-book valuation, said Eastspring Investments Bhd chief investment officer Chen Fan Fai.

“Asia looks cheap compared with other developed markets. So at some point, investors will come around to the view that they should pay more attention to Asia,” he told reporters at  Eastspring Investments’ launch of the Asia-Pacific Ex-Japan Target Return Fund yesterday.

However, he cautioned that cheap valuation does not equate to a buy but rather a “good starting point” to conduct evaluation.

According to Chen, Asia as a whole is still the highest economic growth region, with its growth rate  relatively stable at about 6%, coupled with a very low valuation. Comparatively, growth in the US is slowing down while Europe is not growing.

China’s less robust economic growth is one of the main reasons valuation in Asia is low, he said. People are worried about China as indicators seem to reveal that its economy is slowing down but the republic has repeatedly stated that it will achieve an economic growth of 7% to 7.5%.

“The economic growth of 7% to 7.5% is something very doable because the Chinese government has a lot of resources,” said Chen.

Furthermore, he said there are countries in Asia undertaking economic rebalancing, citing India and Indonesia as examples.

“So all these are telling [and] clear signs that Asia as a whole is heading in the right direction. When you sum these up, what it points to is that you should be looking at Asia,” Chen said.

He sees the Asia-Pacific region achieving gross domestic product (GDP) growth of between 6% and 6.2% this year and earnings growth to reach 10% to 12%.

On the domestic front, Chen noted that corporate earnings forecast ranges from 10% to 11% based on analysts’ consensus, but he sees a downside risk on the cost side due to the impending implementation of the goods and services tax next year.

He said global economic growth is “not synchronised” and “patchy”, but said it is still growing, adding that it is not strong enough to give the impetus or push for a tightening of monetary policy to take effect immediately.

“If it does come, we expect it to be gentle,” Chen added.


This article first appeared in The Edge Financial Daily, on October 15, 2014.