Yesterday we looked at the potential bargain that unloved UK equities may currently represent for those investing online into their ISAs and SIPPs. However, there is one other region that has been in the doldrums this year and many experts also now believe represent good value for canny investors willing to spread their net in the hunt for long term turns – Asia Pacific without Japan.
Back in 2016, Asia Pacific attracted some of the Brits investing online and keen to diversify out of London-listed equities in the wake of the Brexit referendum. Things started well with the region a star performer in 2017 but this year has marked a reversal of fortunes. Asia Pacific’s major benchmark indices have fallen by an average of around 11%. The plunge has been the result of general capital outflow from Emerging Markets this year as investors started ratcheting down the risk profile of the portfolios. That trend was further compounded last month as ‘Red October’ saw stock markets take a bruising around the world, with almost no region or country spared the broad sell-off.
However, every cloud has a silver lining and the companies that make up the MSCI Asia Pacific ex-Japan index are now, following this year’s fall, trading at an average of just 10.3 times 2018 earnings. Compared to most of the rest of the world that represents very good value. Dividend yields have also risen to an average of 4.1%. That’s a level only UK companies can currently compete with among the world’s developed equities markets, further underlining why what look like oversold UK companies are also worth a look for the long term.
The broader MSCI Asia also looks attractive on the basis of a very modest x1.2 trading multiple on the ‘book value’ of the companies that make it up. Book value is calculated by deducting liabilities and intangible assets from solid assets. That particular ratio has only dropped so low 3 times in twenty years. All three times, which were in the immediate aftermath of major crashes, the ’97-’98 Asia financial crisis, the dotcom crash in 2000 and 2008’s international financial crisis. All three lows were followed by strong rallies.
However, anyone investing online and convinced by these indicators of value in Asia should still focus on the longer term. Short term, significant risks do loom large, especially the dollar strength and rising interest rates that have caused the Emerging Markets pain this year. On the other hand, it is exactly those factors that have pushed Asian equities to their current level of value. And with company profits and dividends in the region, like UK equities, now could represent the ideal time to buy.