LONG WAY TO FALL
As the MSCI Asia ex-Japan benchmark index looks likely to post its best week since March, some investors might be asking whether markets have bottomed. At the very least, have valuations fallen enough to make stocks look relatively attractive?
Not quite, said Garry Evans, strategist at HSBC in Hong Kong.
Valuations in Asia are running at 2.1 times trailing book value, far above the 1.2 times reached in the last three major periods of market volatility in 1998, 2001 and 2003.
Using the usual price-to-expected earnings ratios to measure relative value, shows that Asian stocks are quite cheap. They have slid to 11.7 times 12-month forward earnings from 17 times in the last year.
But Evans said consensus earnings forecasts for 2009 could come down sharply in a matter of months.
"We think it unlikely, though, the bear market is over. Investors have not yet capitulated," he said in a note. "In the worst case, there could still be a long way to fall."
Institutional investors, who usually move large amounts of money with longer time frames, apparently agreed.
They did not take part in this week's global equity rally and actually pulled back their accumulation of European stocks over the last month to the slowest since January, according to State Street Global Markets, which tracks about $15.3 trillion in assets held in custody by the bank.
In addition, large investors have been selling the U.S. and European energy sectors as well as emerging market equities and moving into sovereign bonds, State Street data showed.
"This mini-rally looks as though it is built on unsafe foundations. State Street Global Markets flow measures suggest that institutional investors are staying on the sidelines," the firm said in a weekly note.
Japanese government bond prices rose on a drop in the Nikkei and an overnight surge in U.S. Treasury debt prices.
Japan's benchmark 10-year yield <JP10YTN=JBTC>, which moves in the opposite direction to the price, fell 8.5 basis points to 1.570 percent, down more than 10 basis points from Thursday's high and near a three-month low of 1.530 percent hit last week.
The dollar slipped against the yen to 107.20 yen <JPY=> after hitting a one-month high a day earlier. The euro was at $1.5666 <EUR=>, down about 4 cents from a record high above $1.60 SET last week.
