Asian equities are still trading on a 25 per cent discount to developed-world equities, in spite of a China-inspired rally, Investec’s Greg Kuhnert has said.
The manager of the Investec Asia ex Japan fund said the discount the region was trading on was “the largest seen for a decade”.
Mr Kuhnert said that he was “cautiously optimistic” about the prospects for further gains in Asian equities, in spite of the MSCI AC Asia ex Japan index’s 8 per cent increase so far this year.
“Stock valuations still look reasonable in historical terms,” he said.
There were also several factors and “potential catalysts” supporting further returns from Asian equities, he added.
The manager claimed “the prospects for corporate earnings relative to developed markets are improving”, which could be a significant tailwind for the region if it persisted.
He also cited the trend towards lower global commodity prices, such as oil and base metals, as a tailwind for Asia, given the region is on aggregate a net importer of such commodities.
But the main catalysts looked set to come from China, and not just from the tremendous rally in the country’s stockmarket in the past year, Mr Kuhnert said.
The manager said the liberalisation of China’s savings and investing rules had meant not just a boom for onshore Chinese equities, but it also could release “vast savings pools into [Asia] in the long run” as Chinese investors were given more leeway to invest outside of the country.
He also insisted China’s tackling of its problems – such as “excess capacity, local government debt and real estate inventories” – far from being a negative that might reduce growth in the country, could benefit Asia if investors became less concerned about a crisis in China and allocated more to the region.
Mr Kuhnert predicted the wave of interest rate cuts seen so far this year could continue, particularly in Asia where “real interest rates still remain high”, and this would help to stimulate growth and equity returns from the region.
“This is particularly true in China, in spite of recent moves to cut interest rates and bank reserve ratios, and more is expected on this front,” he added.
“Additional policy easing should bode well for the Chinese market and for Asia overall, given the importance of China as a major trading partner within the region.”
