Asian stocks still offer long-term value – MoneyWeek

Someofthosefearsareo…

By admin , in 狗65网址到底是多少 , at 2020年8月2日

Someofthosefearsareoverdone。

Asianmarketsaregenerallynotexpensive。

Theyrejustnotreallycheapanymore。

Butweshouldcertainlyexpectsomevolatilityoverthenextyear,eventhoughthelong-termtrendwillbeup

Wereonlybacktopre-Lehmanprices

First,letslookattheMSCIAsiaex-Japaninperspective。

Asyoucanseebelow,itsonlyjustbackuptothelevelsitwasatbeforeLehmanBrotherscollapsedlastSeptember。

Figure1。

MSCIAsiaexJapanindex

Giventhatmostinvestors(includingme)thoughtAsianmarketswerereasonablypricedfordecentlong-termreturnsbackthen,itseemsoddthatwerenowworryingthattheyreexpensive。

Thatshappeningbecausemanyinvestorsareanchoringonthesizeofthereboundratherthanthebroaderpicture。

Inanycase,intheshortterm,sentimentisall-important。

InvestorsattitudeshaveturnedpositivethankstoaV-shapedrecoveryintheglobaleconomyandthefloodofmoneybackintoriskyassets。

ThechartbelowshowsnetsalesofforeignsecuritiesbyAmericaninvestors;youcanseehowconditionshaveturnedaroundfromwhentheywererepatriatingtheirfundsenmasseatthepeakofthecrisis。

Figure2。

NetsalesofforeignsecuritiesbyUSresidents($bn)

AndIthinkthisrallycanrunforawhilelonger。

Therewillbebadnews,especiallyUSunemployment,whichislikelytoremainstubbornlyhigh。

Buttherewillalsobeenoughthatsgood,orcanbeinterpretedasgood,tokeepthebullsontop。

Inshort,Iwouldnotwanttobetagainstaglobalstockmarketaspumpedupasthisone。

However,atsomepoint,itwillbecomeclearthatWesterneconomiesarebeingproppedupbyunsustainablefiscalstimulus。

Theasset-pricerecoveryis,afterall,beingdriventosomeextentbyinventoryrebuildingandshort-termboosts;Istillthinkitslikelytofadenextyear。

ManyfirmsespeciallyintheUSarealsobeatingearningsforecastsbylayingoffstafftocutcosts,astrategythatonlyworksforafewquarters。

Soatsomepoint,wellhaveaselloff。

Thisislikelytobequiteviolent,butIthinkthereslittleprospectthatwewillgetbackdowntothelevelsseeninMarch。

Uber-bearsseekingasellofftorock-bottomvaluationswillbedisappointed。

Andwhilebothdevelopedandemergingmarketswillsellofftogetherintheshortterm,thelong-runoutlookisverydifferent。

Asiandecouplingisntdead

Westernmarketsreachedpeakvaluationsin2000,whentheSP500tradedonacyclically-adjustedprice/earningsratioofaround45times(thecyclically-adjustedp/eistheprice/earningsratiobasedoninflation-adjustedaverageearningsoverthelasttenyears。

Assuch,itattemptstosmoothouttheeffectofthebusinesscycleonearnings-to-valuestocksonalong-termbasis)。

Theythenenteredatypicalvaluationbearmarket,inwhichstocksmovefromovervaluedtoundervaluedoveralongperiodoftime。

Thisprocessismarkedbysharpralliesandslumpsovermanyyears。

Dependingonthelevelofinflation,thenominalleveloftheindexmaynotdeclinemuchoverthewholeperiod(the1970sareagoodexampleofthis),butvaluationsdeclinesignificantly,toapointtypicallywherethecyclically-adjustedp/eisinsingledigits。

Nomarketfollowsexactlythesamepatterntwice,butallthesignspointtoafinalbottomthatcouldeasilybefiveyearsaway。

However,Asiaisverydifferent。

Stocksremaininalong-termbullmarketwheresentimentwillgrowmorepositiveasmorepeoplebuytheAsiangrowthstoryoverthenextfewyears。

TheMSCIAsiaex-Japanpeakedatthreetimesbookvaluein2007;bytheendofthelong-termbullmarket,peakvaluationislikelytobesignificantlyhigher(unfortunately,wedonthavethelong-termdatatocalculatecyclically-adjustedp/esforAsianmarkets,sowehavetousesimplervaluationtechniques)。

Soovertime,AsianmarketswilldecouplefromWesternonestosomeextent。

Thisprocesscanthappenovernight;WallStreetisstilltooimportant。

Andsointhiscycle,AsiamustselloffwhenWallStreetdoes。

ButastheAsiastorytakeshold,WallStreetsinfluencewilldiminish。

Indeed,thismayalreadybehappening。

ThechartbelowshowsthecorrelationbetweentheSP500andtheMSCIAsiaex-Japansince1990。

Asyoucansee,themarketsaregenerallyhighlycorrelatedintermsofdirection,withanR-squaredvalueof0。

94(themaximumisone,implyingperfectcorrelation)。

Inshort,whenWallStreetrises,Asiarises;andwhenWallStreetfalls,Asiafalls。

Figure3。

CorrelationbetweenSP500andMSCIAsiaex-Japan

Butwhatthisdoesnttellusisthatwitheachebbandflow,AsiaisgainingalittlemoreandgivingbacklessthantheSP。

Indeedifwelookatthereturns,wecanseethatsince2000,theSP500hasreturned-0。

9%peryearinpricetermsand1。

1%peryearintotalreturnterms(withdividendsreinvested)。

BycomparisontheMSCIAsiaex-Japanhasreturned11。

9%peryearand15。

1%peryear。

Inshort,decouplingmayalreadybeunderway。

Figure4。

SP500,pricereturnandtotalreturn

Figure5。

MSCIAsiaex-Japan,pricereturnandtotalreturn

Wheretofindthebestvalue

Sothatsthebigpicture。

Intermsoflong-termstrategy,Ithinktryingtotimethemarketpreciselyisprobablyawasteofeffort。

Exceptattimeswhenthemarketisclearlygrosslyovervaluedorundervalued,thestrategyofgraduallyfeedingyourmoneyintolow-costfundsorindividualstocksisthesimplestwaytogo。

Sowhichmarketslooktoofferthebestvalueatthemoment?

Asthenexttableshows,thedomesticChineseandIndianmarkets,whilenotexpensive,areamongthemosthighlyvalued。

Ialsothinktheresarealriskthatthebubblethatbothexperiencedin2007willtakelongertoshakeoutthanmanyexpectandthatbotharevulnerabletoabigsell-off。

Figure6。