- US valuations have surged as AI enthusiasm has driven Nasdaq and S&P 500 multiples sharply higher.
- S Korea, Shenzhen, and Taiwan have gained most from AI-linked electronics export strength.
- Hong Kong, Shanghai, and Singapore markets have also been helped by strong exports.
- Malaysia and Thailand have been on the flatter side despite electronics exports.
- India, Indonesia, and the Philippines markets are soft owing to policy issues and less AI exposure.
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COMMENTARY: Asian stock markets’ valuation divergence
In the middle on an extraordinary tech wave, driven largely by the AI boom, global stock markets are undergoing shifts of multiple nature. In the US, regardless of the index, the recent surge has been driven mostly by tech companies, a number of which are surpassing trillion-dollar valuations. Tech-heavy Nasdaq-100 has seen its Price-Earnings (PE) ratio jump from 20.3 at end-2022 33.7 presently, reflecting a sharp rise in positive sentiments among market participants who have bid stock prices to historically high levels. For S&P 500, the multiples jump has also been striking, from 17.1 to 25.1 during the same period.
Three markets in Asia show similar valuation gains. China’s Shenzen stock market, and key indices in South Korea and Taiwan have witnessed PEs heading to well over 30 this year, far above where they stood just five years ago. Companies selling electronics products critical for AI capacity buildout are the clear winners in this cycle. Stock markets in Shanghai, Hong Kong, Singapore have also seen impressive gains lately, largely on the back of companies benefitting from burgeoning exports, which have recorded repeated records this year.
Not all Asian markets have been lifted by this boom. Malaysia and Thailand, despite strong electronics exports, have not had major upgrades to stock market valuations. Domestic politics and lacklustre performance of the non-electronics sectors have gotten in the way to some extent. Still, neither index has lost money for their investors so far this year. Meanwhile, stock markets of India, Indonesia, and the Philippines have been characterised by negative returns. India, a popular investment choice for years, has been on the backfoot lately, with its once impressive PE ratios declining steadily. Not being a part of East and North Asia’s world-leading electronics supply chain has gotten in the way of enjoying the upside of the AI boom. This year’s energy shock has been problematic too. But by regional valuation comparison, India’s stocks still command fairly high premium. No such silver lining for the beleaguered markets of Indonesia and Philippines. Volatile policy making, middling exports performance, soft domestic demand, and a flat or worsening investment environment have kept investors unenthusiastic about the prospects of these two markets. The varying performances of regional markets reflect their cyclical strengths and offer important lessons for their respective policy makers. The hot markets may need some cooling measures; the out of favour ones need to ways to revive investor interest.
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