Relative Stock Valuations Are Still Attractive, Value Partners Says

by birtanpublished on September 10, 2020

Says relative valuation equity risk premium for example is still attractive under current the current market environment let's bring in kelly chung she's senior fund manager for multi assets at value partners kelly thanks for joining us what do you what do you

Mean by that exactly hi good morning um hi um so i think um the asian market is um it's definitely um still doing well compared to the rest of

The world um asia is the actually especially china it's the first one that has gone through the casino and they have come out pretty well and the data so far has shown

A still pretty strong recovery although the pace of the recovery may slow down a bit but um the recovery is still pretty strong so we believe that it will continue to advance at least

Until the end of the year um so so for the overall equity market uh although from absolute term perspective is uh pretty expensive but uh in we are now so so-called a new normal

Environment where interest rate will stay low for for a prolonged period of time and uh central banks are still pouring liquidity into the market to uh to support the economies so i think

We have to look at um relative valuation um in the current environment which we have to compare for example equity risk premium which is the equity university's volunteer and from that perspective um the equity

Market is still a pretty reasonable evaluation level at the current environment kelly but you know as this rally continues we look at all the metrics and the

Various ways of valuing companies and it does look like those valuations are getting rather extended on most measures you know how extended and how concerned are you about it from that perspective

Yes uh as i said uh if we look at um from an absolute perspective they are really expanded like no matter we look at um like pvp did those traditional renovation measures and

Especially compared to history they are pretty scratched um however as i said um we are kind of in a new normal environment where interest rates will

Be zero or even negative for a long period of time so and with the ample liquidity people have no choice right now but to put money into risk assets for example individuals or

Even pensions they have to you know meet a certain um uh income requirement or like certain return requirement they have no choice they cannot like put the money into the traditional fixed income like

You know history so they have no choice but putting more into this asset so uh i think as long as the liquidity are still available and essential banks are still doing whatever they can to support the

Economy um we have to look at relative valuation and from that angle we're not that crazy yet so it doesn't actually look that fragile at the moment kelly but

What could alter that is it a catalyst could it be in the political side of things when we as we head towards november the third oh yeah i think the biggest risk in the market right now is definitely political

Risk because these cannot be predicted um so no matter the u.s china tensions or the u.s election political risk these are the biggest uncertainty in the market right now

Um however um definitely uh as we are getting closer to the u.s election um like um if like you know the democrats uh who continue to go up definitely there will be more uncertainties because

You know they have different policy going forward um so the market may take some correction however as i said because there's so much liquidity in your market and people have no choice but to put money

Into rich assets so i think um the market is pretty hard to have a deep correction as long as the essential banks are still staying by at the economy

Kelly there is so much talk about the broadening of the rally how convincing is that rotation away from tech okay yeah there are a lot of talk about you know come back of

Value style um you know rotation of um leadership from the growth tax sectors to the moore valley um sectors um with the fact already mentioned they allow for

Flexible average inflation target um we believe that inflation will gradually come back in the next um few years with the u-curve stippling so that will favor value stocks however that would not um

Be an immediate change because um right now we are still in a recovery mode from a pretty hard heated economy and people still look for companies or sustainable growth so they

Will still rather to pay high multiple to companies and factors that still deliver very strong and sustainable growth so i think in the near term technology definitely

Uh is you know one of the uh the grow uh sectors that you know have high visibility so people will continue to pay for that however uh um us we you know in the next few years um when inflation

Starts to you know get rising and then you curve get more sickening then i think there will be a bigger rotation back to that receptors but may not be in the near term

Uh it does seem like uh the downward revisions earnings revisions has bottomed but asia has yet to play catch up when it comes to earnings revisions upwards i mean how do you play that

Yeah um in the u.s definitely um earning religion has already crimed uh quite significantly um they have uh significantly revised the earnings upward after the q2 earnings and also the update guidance

From the companies are in asia it's actually also happening analysts are already rising up their earnings expectation for msi asia japan they already expect this year will have extra 10 earnings

Growth um so i think for asia as i said they are actually recover um faster because especially china is one of the first countries to come out from this epidemic

So i think the early school will continue to be healthy in asia and analysts will continue to revise uh more upward and also with the weak u.s dollar trend

I think the capital will continue to flow back to emerging markets especially asia it just started to happen um because we just started seeing importing emerging markets

Last week but i think that will continue because um the u.s dollar would stay which is a structural weakening trend and people um in order to you know get returned they would come back to asia uh they will come back in the

Emerging market especially asia

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