Clues from common metrics

If we look at forward P/E, which is a common valuation metric, most equity markets are currently trading at a P/E multiple above their 15-year average. The P/E ratios of the S&P 500, MSCI APAC ex-Japan and MSCI emerging market indices are hovering around levels near their 15-year high.
 

Equity market valuations: P/E ratios¹

Nonetheless, forward P/E ratios are not the only valuation metric investors could consider. Price-to-book (P/B) ratio is another indicator for gauging stock valuations, especially for sectors like banks or real estate developers. The amount of assets they have - loans for banks and the size of a developer’s land bank - can generally help determine their earnings outlook.

Except for US equities which have a relatively higher P/B ratio, this same measure for equities in Europe, Asia and other emerging markets is trading below the long-term average. The P/B multiples of a number of markets within the Association of Southeast Asian Nations (ASEAN) grouping, such as Malaysia, the Philippines and Singapore, are even trading near their 15-year low. 
 

Equity market valuations: P/B ratios¹

1. Source: Bloomberg Finance L.P., China Securities Index, FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. P/E and P/B ratios are in local currency terms. China A valuations based on the CSI 300 Index and use 10 years of data due to availability. China valuation is based on the MSCI China. 15-year range for P/E and P/B ratios are cut off to maintain a more reasonable scale for some indices. Provided for information only to illustrate general market trends, not to be construed as research or investment advice. Forecasts/estimates are indicative and may or may not come to pass. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 14.09.2020.

A rallying tech sector²

Valuations of different industries vary. Tech stocks generally have relatively higher P/E as they are in the growth industries. The sector also covers a relatively higher share in the S&P 500 Index, compared with other regions³, and the rally of tech stocks since March have led the US markets higher.

The valuations of tech stocks have risen as mobility restriction measures are driving some emerging trends. Employees continuing to work from home, alongside increasing global demand for cloud computing and e-commerce, are expected to bode well for tech stocks. 

How are we capturing global equity opportunities?

• Riding on secular mega trends

  Investing in companies that are aligned with the mega trends in tech development. The global public health crisis is forcing workers and businesses to change the way they operate, and the continued containment measures are increasing the adoption of tech for work and life at home.

• Actively managing global opportunities

  With an experienced investment team, robust research and a focus on long-term growth engines across markets, this could help identify quality corporates which are riding on long-term structural growth opportunities. 

Conclusion

Global equities have rallied in recent months but that doesn’t necessarily mean equities are over-valued. Based on what we have witnessed in the tech sector, having a focus on mega trends alongside an active approach could help long-term investors capture quality opportunities.
 

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice. Forecasts/ estimates may or may not come to pass.

2. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
3. Source: S&P Global Ratings, FTSE Russell, MSCI. Data as of 31.08.2020. Information technology represented 28.7% of the S&P 500 Index, 16.9% of the MSCI AC Asia Pacific ex Japan Index and 0.9% of the FTSE 100 Index.

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current or future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.