From seeing Asia’s trends to knowing markets that stand to benefit
Seeking out opportunities in Asia amid growing wealth, consumption and savviness.
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
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?
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.
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.
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.