Ayaz Ebrahim, co-head of Asia Pacific regional team, emerging markets Asia Pacific equities
J.P. Morgan Asset Management
The ‘good’ aspect to this market correction is that it’s actually quite healthy. To put things in perspective, a typical bull market usually experiences drawdowns and markets had been getting a bit frothy, so it’s not unusual to have a pullback.
If we look at all of the broad fundamentals, they are still intact - economic growth remains strong and corporate earnings continue to be upgraded across US, Asia, Japan, and Europe. Interest rates moving (modestly) upwards as a reflection of good economic growth is a positive, as long as interest rates don’t spike aggressively.
Asia Pacific equities generally speaking look attractively valued, both relative to other markets and relative to their own history. Even at these levels following strong returns last year, valuations are not stretched. Price-to-book valuations are not trading above their long-term average and 12 month forward price-to-earnings ratio is around 14x, which is quite reasonable.
Our constructive view has not changed in light of this volatility, if anything we would perceive a buying opportunity from any further sell-offs.
We are firmly of the view that we are no more than mid-cycle in EM equities, with the recovery only really having started during 2016. Earnings are picking up but are still a far cry from earlier peaks and valuations are not particularly demanding.