It’s All About Valuation as Asia Stock Investors Buy the Dip
(Bloomberg) -- The first back-to-back weekly loss for Asian stocks since September is just another opportunity for some global money managers to build up positions.
Valuations are front and center for the likes of UBS Global Wealth Management, Fidelity International and JP Morgan Asset Management Inc., which say that investors should use the latest selloff to buy stocks that have yet to price in an economic rebound and longer-term trends such as environmental, social and governance themes. Southeast Asian shares, Chinese banks and beaten-down electric-vehicle makers feature among the top picks.
“Any correction is an opportunity to add at cheaper valuations,” said Ayaz Ebrahim, a portfolio manager at JP Morgan Asset. “The market leadership will broaden out instead of being very uneven like last year.”
The two-week rout wiped out $1.3 trillion in market value from Asian equities as surging U.S. Treasury yields sapped appetite for riskier assets. Yet, investors have shown a tendency to take advantage of pullbacks: The MSCI Asia Pacific Index alternated between losses and gains in an eight-day period through March 4, matching the longest such streak since 2013, according to data compiled by Bloomberg.
The gauge is currently trading at 16.7 times its 12-month forward earnings after falling more than 1% on Monday as investors sold tech stocks, down from 18.3 times in mid-February.
READ: Asia Traders Take Bigger Drawdowns in Their Stride
Here are some of the key themes investors are watching:
Singapore is emerging as a favorite within Southeast Asia -- a region seen as a safe haven from any yield havoc. The cyclicals-heavy, old economy-oriented market is trading at one of the lowest forward price-to-earnings ratios in Asia.
Singapore is a “defensive market” in case yields rise because it’s cheap, said Herald van der Linde, HSBC Holdings Plc’s head of Asia Pacific equity strategy.
The nation’s benchmark Straits Times Index rallied 4.6% in the last two weeks, versus a 5.6% slide in the Asian benchmark. The MSCI Asean Index rose 0.8% in the period.
While Asian hedge funds have pared bets on clean energy because of high valuations, JP Morgan Asset and UBS Wealth say electric vehicles are worth buying on dip.
“The new Chinese EV makers have come off substantially,” said UBS Wealth’s head of APAC equities and credit Hartmut Issel, adding that if enterprise value-to-sales ratios fall to about six or seven times, they “could warrant another look”.
U.S.-listed shares of Nio Inc. and Xpeng Inc. are still trading at forward ratios of more than 8 times, despite having suffered losses of more than 20% each this year.
Beelining for Banks
Bank stocks have rallied hard this year amid optimism that reopenings and vaccine rollouts will boost lending, deal-making and consumer spending. Now, rising interest rates are only adding to their allure.
Chinese banks -- one of the most unloved sectors in the country -- make for particularly undervalued recovery-related plays, according to Stuart Rumble, a multi-asset investment director at Fidelity International.
Aside from names across China and Hong Kong, Manishi Raychaudhuri, BNP Paribas SA’s head of APAC equity research, said his model portfolio has exposure to Korean lenders and private sector banks in India.
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