Asian stocks trade at a significant discount to their global counterparts.
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After regional equities fell in 2021 due to market concerns about slower growth from COVID-19-induced curbs, Asian shares’ relative price values touched a more than 18-year low compared to their global counterparts last week.
According to Refinitiv data, the MSCI Asia-Pacific index’s (.MIAP00000PUS) forward 12-month P/E ratio was 14.27 at the end of last week, compared to the MSCI World index’s (.MIWD00000PUS) P/E ratio of 18.31.
According to the data, the valuation discount of over 22% is the biggest since at least June 2003.
Shares in Hong Kong, China and South Korea were the cheapest in the region, with each market having a forward 12-month P/E ratio of less than 11.
According to Toby Hudson, head of Asian equities investments, ex-Japan, at asset management Schroders, sectors such as banking, insurance, and property appear to be undervalued on headline multiples.
“These industries are normally beneficiaries of rising inflation and interest rates, so if inflation is more than just a ‘transitory’ issue, there may be potential for an improvement in returns in the longer run,” he said.
“However, the emergence of fintech and e-commerce in the region is posing persistent structural difficulties to these industries, which dampens our enthusiasm.”