In 1998 investors ran away from Asian markets as a panic set through causing shares of most Asian companies plummeting. However, in the past 3 years things have been different. New ways to trade Asian securities along with greater acceptance of investing in foreign markets have caused a flood of international money to flow into these markets.
Is Asia at risk for another “panic?” Many academic studies and market experts have noted the major differences this time. Fortunately for them (unfortunately for us?) some Asian currencies are being seen as more and more of a safe diversification for investors and for governments looking to diversify their reserves away from the dollar. Furthermore, Asian governments seem committed to growing their countries while keeping an eye on inflation, thereby promoting stabler growth (can stable growth exist on a wide-scale basis?).
Interestingly, 0n a micro and macro scale, Asian markets trade for a much cheaper multiple (means price/earnings ratio) than US markets – basically because people don’t trust the story enough to bid prices higher. But if you look across markets, you see dynamic countries such as Singapore trading for 12 times earnings (using the Singapore iShares ETF EWS as a proxy here) compared to our Nasdaq index trading for over 20 times earnings (using the Powershares QQQQ ETF as a proxy). The Nasdaq is theoretically our ‘riskiest’ index and Singapore would be considered by some experts and most laymen as a risky investment also. But digging deeper, the value in many Asian shares can seem compelling, especially when comparing their growth prospects with those of US companies.
Should you run out and invest in Asia? I am not writing this article to tell you to do that. However, if you are the studious type, this may be a good area to research and if you haven’t looked here before, perhaps it warrants some attention?
Have a great Thursday!
PS I do not, as of the date of this writing own or invest in any security mentioned in this article. This is for information purposes only and should not be construed as investment advice. Consult your own advisor before making decisions with your portfolio. See my Important Disclosures page for more of this type of talk!