The chances of recession have faded enough for emerging market investors to plow...
SYDNEY/TOKYO - The chances of recession have faded enough for emerging market investors to plow billions of dollars into Asian stock markets, but not enough to buy shares in the region’s banks.
Besides the reduced, but still abiding risk of a sharp economic slowdown, investors are deterred by onerous regulatory changes introduced for lenders since the last crisis. The price-to-book ratio, a popular metric for measuring valuation, compares stock price with underlying assets. A ratio below 1 could indicate either an undervalued stock or that investors have concerns about how well the stock is backed up by assets. The low banks’ P/B is a red flag for investors.
“In many cases, one share in a bank equals one share in a country. Banks in emerging markets are a regulated business. They are often driven by what’s happening in government policy,” said Sean Taylor, chief investment officer for the Asia Pacific at Deutsche Bank’s asset manager DWS in Hong Kong.
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