Insight: Asia impacted by “market correction” globally
Business Chief asked Ken Wong, Client Portfolio Manager at Eastspring Investments, to comment on the impact a recent plummet in the Dow Jones has had on Asia’s markets.
Currently, the market is going through a much-needed correction as valuations were approaching expensive levels for most markets. In particular, China’s equity markets were up 70% over the past 13 months, and this recent 10% correction from its high is actually not that steep.
Despite the recent market correction, investors in Asian equity markets still seem to be in a better position at a time when corporate America seems more hard pressed to deliver elevated profit expectations while also trading at very expensive valuations. Asian equity markets are trading at a P/B ratio of around 1.7x while US equity markets are still trading at 3.2x P/B after this recent price correction.
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Dow Jones plummet impacts Hang Seng, wider Asia
Asian corporates in general are still expected to deliver strong corporate earnings and most are in good shape as a result of previous cost cutting and balance sheet restructuring that we have seen over the past few years. Despite the recent market volatility, things are still quite sound in this part of the world, Asian corporates are still expecting to see their earnings grow by around 13% in 2018, with China leading the way with earnings growth expectations of over 20% this year.
For investors concerned about the recent market volatility, they should look at investing in a low volatility equity strategy as we have seen these types of strategies outperform the broader benchmark indices by over 2% over the past few days. The benefits of these low volatility equity strategies is the fact that they have bond like risk / volatility characteristics while providing investors with an enhanced dividend yield and market returns which are more in-line with equity returns.
As long as there is still enough cheap liquidity out in the market place, we could start to see some bottom fishing over the coming days as investors start to look for cheap / undervalued stocks. In particular, investors could look toward those sectors that underperformed in 2017, such as financials, energy and consumer staples.
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