| Bill Maldonado, HSBC |
The $1.5 trillion decline in equities in emerging markets has left South Korean and Chinese shares the most attractive for Bill Maldonado, who directs stock investments for HSBC Global Asset Management Ltd.
“It seems almost foolhardy in the face of the current volatility to be that positive but in reality, we are,” said Maldonado, Asia-Pacific chief investment officer for the unit of the London-based bank, which manages $413 billion. “The two big outliers today, which look both very cheap and very profitable, are China and Korea.”
While Korean profits are rising, slumping shares have made the benchmark Kospi index the cheapest in Asia, trading today at just 0.97 times the value of its constituents’ assets, Bloomberg reports. The ratio for China’s Shanghai Composite Index (SHCOMP) was 1.41 times, after falling in June to the lowest in 17 years.
Maldonado’s outlook for South Korea and China contrasts with growing doubts about India, where he’s weighing whether being bullish about investing in the nation was a mistake.
HSBC, Aberdeen Asset Management Ltd. and Baring Asset Management Ltd. say some developing-nation valuations are too compelling to ignore after the MSCI Emerging Markets Index slumped 13 percent this year through yesterday. That left it trading at 10.5 times estimated profit, compared with 15 for the Standard & Poor’s 500 Index.
While Asia’s role as the world’s growth engine is waning, economists surveyed by Bloomberg predict expansion of 6.3 percent across the region in 2013. That’s still more than triple the expected global rate.
Cheap Valuations Investors should also buy shares of banks, energy companies and other industries that benefit from a stronger economy, Maldonado said in an Aug. 21 interview in Hong
Kong. Energy stocks are the cheapest among the 10 industry groups in an MSCI gauge of equities in developed and emerging markets when prices are compared to forecast earnings.
Analysts expect companies in South Korea’s Kospi index to boost earnings per share by 58 percent in the next 12 months, according to data compiled by Bloomberg. The gauge climbed 1.1 percent today, while the Shanghai Composite Index declined 0.5 percent. The MSCI Asia Pacific Index advanced 1.1 percent as of 3:37 p.m. in Hong Kong.
China Mobile Ltd., the world’s largest phone company by users, in which HSBC Global Asset Management has invested, traded at 10.3 times estimated earnings yesterday compared with 13.6 times for AT&T Inc.
Growth Outlook The discrepancy in premiums between developed and emerging markets is due to investors preferring liquid large-cap stocks where they can get in and out easily, rather than a rebalancing of world growth or profitability, according to Maldonado.
Growth in emerging economies is still strong despite recent slowdowns, he said.
China, the world’s second-biggest economy, will increase output by 7.5 percent this year, from 7.8 percent in 2012, according to analyst estimates compiled by Bloomberg. India’s economy is expected to expand 5.4 percent in 2014, compared with 5.1 percent last year.
Emerging markets may outperform developed markets over five years, Aberdeen Asset’s chief investment officer, Anne Richards, said at a briefing in Sydney this week. The fund manager likes Indian stocks on their valuations and growth potential, Peter
Elston, Singapore-based head of Asia-Pacific strategy at Aberdeen Asset, told Bloomberg TV India on Aug. 16.
Chinese stocks are attractive as the risk of a sudden economic slump is receding and valuations trail other markets, Agnes Deng, head of Hong Kong and China equities at Baring Asset, said Aug. 12.
- BusinessDay