Pedestrians walk past the Bombay Stock Exchange (BSE) building in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Emerging Value in Asia Stocks Not Enough to Win Investors

(Bloomberg) -- Asian stocks are trading at a two-year low versus the rest of the world. But most of the region’s emerging markets are still failing to attract investors.

That’s partly because that corner of the market remains too expensive. The valuation for most developing-nation shares in Asia is higher than for the MSCI Emerging Markets Index.

Emerging Value in Asia Stocks Not Enough to Win Investors

The MSCI EM Asia Index has slumped 12 percent this year, sending its valuation to about 11 times estimated earnings, below its 10-year average, data compiled by Bloomberg show. While some strategists say opportunities are starting to emerge, they’re also warning it may be too soon to invest due to the U.S.-China trade tension and potential contagion from weaker markets.

“Asia EM valuations are below their historic 10-year average but can get cheaper,” said Paul Kitney, the chief strategist at Daiwa Capital Markets Hong Kong Ltd. “They are still some way above the post-global financial crisis low levels.”

Emerging Value in Asia Stocks Not Enough to Win Investors

The trading of late shows the risks: the Shanghai Composite Index has completely wiped out its rebound from the second half of August, closing at its lowest level since January 2016 on Tuesday. The Philippine Stock Exchange Index failed to maintain its gain, taking its year-to-date loss to 12 percent, the region’s worst after China.

While risks may peak ahead of the U.S. mid-term election, the tariffs rhetoric is likely to “get worse before it gets better,” Kitney said. Asian shares excluding Japan could face losses of up to 15 percent before any good news lifts the market, according to a Daiwa report published on Sept. 7 noting a 75 percent likelihood that the world’s biggest economies will reach a trade deal before November.

Frank Benzimra, the Hong Kong-based head of Asia equity strategy at Societe Generale SA, says opportunities exist at the moment, but only in some specific areas. He sees value mainly in Chinese banks and sectors related to domestic consumption because investors have discounted bad news too excessively. For countries like Indonesia, it’s still “a little bit premature” to start to accumulating shares as the risk of contagion from weaker emerging markets remains.

©2018 Bloomberg L.P.