(Reuters) – Asian equities saw their valuations fall to a record two-year low in May. This was due to concerns about monetary tightening by central banks and disruptions in supply chains.

According to Refinitiv data, the forward 12 month price-to-earnings (P/E), for the MSCI Asia-Pacific index was 12.6 at last month. This is the lowest level since March 2020.

As higher inflation levels fuelled recession fears and China lockdowns prompted manufacturers from Japan to South Korea, to reduce production activity in their regions, regional shares suffered greater declines.

Graphic: MSCI Asia-Pacific and World index’s PE – https://fingfx.thomsonreuters.com/gfx/mkt/zgpomedxkpd/MSCI%20Asia-Pacific%20and%20World%20index’s%20PE.jpg

Data showed that the’s PE stood at 15.3 as of the last month. This pushed its valuation premium over MSCI Asia-Pacific at 21%. It was much more than the 10.8% average.

Zhikai Ch, Head of Asian Equity at BNP paribas Asset Management (OTC) said “Valuations in Asian equities seem attractive compared to others.”

“We will continue to support high-quality businesses with low debt that are able to produce sustainable returns and have sound or better ESG profiles.

Regionally, the North Asian countries’ equity markets were valued at lower valuations than their South Asian counterparts.

In comparison to Hong Kong, which had 9.9 and 9.4 P/E respectively, South Korean equity was roughly 9.4

Graphic: Breakdown by country for Asia-Pacific equities’ valuations – https://fingfx.thomsonreuters.com/gfx/mkt/lbvgndxewpq/Breakdown%20by%20country%20for%20Asia-Pacific%20equities’%20valuations.jpg

However, Thailand and Indonesia have higher P/E ratios (15.7 and 15 respectively).

Chen, BNP Paribas said that South-east Asia will likely deliver better earnings growth than North Asian counterparts due to its post-pandemic recovery and higher commodity prices.

Data showed that analyst have raised forward earnings of companies from Singaporean and Indonesian by 2.3% & 1% in the past month.

Graphic: Breakdown by sector for Asia-Pacific equities’ valuations – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwebzapo/Breakdown%20by%20sector%20for%20Asia-Pacific%20equities’%20valuations.jpg

Indian equity dominated the region’s top spot for value multiples. They had a P/E ratio (19), despite concern over rising inflation and an increase oil prices.

Nomura stated in a report that “we think there are upside risk to yields upon sustained inflationary pressures, and the Fed’s balance sheet contraction.”

“Historically there was a slight correlation between yields (Indian Equities) valuation multiples, and an adjustment to 16-18x is still possible.”

Graphic: Breakdown by country for estimates changes – https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwebyavo/Breakdown%20by%20country%20for%20estimates%20changes.jpg