For investors prepared to accept the possibility of further short-term shocks to the global financial system, the stampede out of stock markets this month has driven share valuations to enticing levels, according to analysts.
The great September sell-off has left Asia ex-Japan markets trading at forward multiples of 10.5 times 2008 earnings and just 9.5 times 2009 earnings.
So is it time to dip the toes into the water again? Only with care, since no one can say that the present shake-out of the global financial system has run its course. Chew Soon Gek, chief investment officer Asia at Deutsche Bank Private Wealth Management, said it could be at least three to six months before longer-running secular trends return to drive market sentiment.
'We have some comfort in that corporate balance sheets are less leveraged compared to history, as gearing is under 20 per cent compared to about 40 per cent during the Asian currency crisis. But headwinds lie ahead for some corporates due to high commodity prices, wage increases in some developing countries and falling demand. Equity markets should therefore be treated with some caution despite the attractive valuations,' Ms Chew said.
A similar cautionary tale was told by most analysts. In their indiscriminate stampede out of equities, investors had dumped both deserving and undeserving companies and now might be the time to look for 'babies that have been thrown out with the bath water', said Norman Villamin, head of research and strategy investments (Asia-Pacific) at Citi Global Wealth Management.
'But if you are going to step into equities in the present volatile environment you should consider a couple of strategies to deal with the risks. First, there is bottom value if you are willing to take a three to four-year time horizon and look for victims of some of the indiscriminate selling over the past week. Here investors should take a bottom-up approach and focus on strong competitive positions that will lead their industries as the global economy recovers, low refinancing needs or balance leverage, bottom of cycle valuations, and high dividend yields to generate return until recovery emerges.
