Asian equities may be primed for a rebound on attractive valuations, mirroring an experience in the 2000s when regional stocks bounced back from the dot-com crash to outperform global peers, according to Robeco.
(Bloomberg) — Asian equities may be primed for a rebound on attractive valuations, mirroring an experience in the 2000s when regional stocks bounced back from the dot-com crash to outperform global peers, according to Robeco.
“If you go back to 2000 to 2003, it was a very similar scenario,” with Asian equities trading at a “massive discount” to US assets that were seen as safer until markets experienced growth corrections and Asian policy makers boosted stimulus programs, said Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd.
Asian equities, outside of a few bright spots in Southeast Asia, have struggled this year as China’s slowing growth and a supercharged dollar weigh on sentiment. The MSCI Asia Pacific Index is trading at 12 times its 12-month forward estimated earnings, near a historically cheap valuation level relative to the MSCI World Index and the S&P 500 Index, Bloomberg data show.
“The valuation gap is about as big as it gets, but things like bad fiscal positions, bad monetary positions and fixed exchange rates don’t exist anymore,” Crabb said. The question investors should ask is what will happen to the valuation gap when things start to normalize and recover in Asia, he said.
After the bursting of the dot-com bubble, the MSCI Asia Pacific Index gained 38% in 2003 and outperformed the S&P 500 Index all the way through 2007.
Traders Find Haven From Global Stock Gloom in Southeast Asia
The asset manager sees Asian stocks as “incredibly resilient,” noting that rising interest rates, high inflation and a stronger dollar would usually result in a “dramatic selloff” of assets in Asia.
The MSCI Asia Pacific Index has fallen 21% so far this year, versus a 25% drop for the Nasdaq Composite Index and a 17% decline for the S&P 500 Index.
“Structurally, we are positive on Southeast Asia” and like markets such as Indonesia and Vietnam where earnings have been resilient and the long-term structural story is positive, said Vicki Chi, who manages three funds together with Crabb with $463 million of assets under management. Their top-performing fund, Robeco Asian Stars Equities, is down about 2% this year, beating 92% of its peers tracked by Bloomberg.
Xi to Give Boost to China Stocks But Not Yuan: MLIV Pulse
As for China, the fund managers see “lots of cheap assets” and “lots of good bottom-up ideas,” especially among lesser-known companies involved in the transition to cleaner energy and electric vehicles. While they are willing to consider investments at a stock level, they don’t see a case for betting on significant stimulus or “dramatic” announcements tied to China’s upcoming 20th Party congress.
“We look to Hong Kong and we think mainland China is following the similar slowly re-opening path,” Chi said. “It is very slow. I don’t think there is going to be a one-stop announcement that everything is going to get better from tomorrow.”
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
