Asian equities attract big money

Asian countries (ex-Japan) including India and China, are now the most expensive region in the world as strong inflows into Asian funds are stretching valuations, according to analysts. Yet, Asian equities continue to attract big money.

The region is trading at 29 per cent premium against the developed world and 14 per cent against global emerging markets (GEM) on price to earnings (P/E) multiple, said a report by the Citigroup.

On price to cash earnings (PE), the region is trading at 19 per cent and 12 per cent premiums respectively. However, on price to book value (PV) ratio, Asia is at a moderate discount against the global emerging markets.

According to Emerging Portfolio Fund Research (EPFR), inflows into Asian funds rose by nine times to $ 1.9 billion last week. Net inflows during the month totalled $8.4 billion, twice the amount attracted by global funds.

"India's valuation is still reasonable and cannot be termed overstretched. Asia appears expensive only because of huge valuations of Chinese stocks," explained an analyst with a mutual fund house. The price to earnings multiple of China is 50-plus, almost double that of India's 30-share Sensex, which has a P/E multiple of 25.24.

Citigroup analysts said inflows into India and Korea country funds benefited the most from liquidity.

"Inflows into the two country funds were $1.6 billion in the last four weeks, almost double that entering Hong Kong and China. On the other hand, Indonesia, Malaysia and Thailand funds were unloved, recording net redemptions during that period," said Citigroup analysts Elaine Chu, Markus Rosgen and Chris W Leung, in their Asia Pacific Equity Strategy report.

The Indian funds received $2005.8 million last week, second only to South Korea's $400.6 million. The Indian funds saw a net outflow of $861.2 million in the same period last year. During the last four weeks, Indian funds received a net $939.3 million, which is lower that last year's (same period) $1,720 million.

Chinese funds received $132.8 million last week and $530.7 million during the past four-week period. On the other hand, country funds of Malaysia ($3.9 million) and Philippines ($0.7 million) saw net outflows.

"The inflows into international equity funds continue to lag behind Asian and global emerging markets funds. Net inflows into this category (international equity funds) were $1.1 billion, or only 0.1 per cent of their asset size. This contrast with 0.9 per cent and 1.1 per cent for the Asian and GEM funds respectively," said the Citigroup analysts.

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