Hang Seng Index Company: Hong Kong market has the lowest valuation among Asia-Pacific stock markets, with attractive stock returns

According to the information from the Wise Finance APP, on June 25th, Hang Seng Index Company stated in a blog post that among the 12 stock markets in the Asia-Pacific region, data shows that the expected price-to-earnings ratio of the Hong Kong stock market is the lowest, reaching only 9.3 times, indicating the highest yield of 10.7%. From a cross-asset perspective, the "Bond Equity Earnings Ratio" (BEER) of various stock markets in Asia (excluding India) is relatively low. As of June 21, 2024, the average BEER of the 12 stock markets in Asia was only 0.6 times, which is relatively inexpensive compared to their 10-year bond yields.

In contrast, the U.S. stock market has shown a convergence between stock and bond yields, with the BEER increasing to 1.0 times, indicating relatively expensive U.S. stock valuations. For global investors interested in diversifying their investments outside of the U.S. stock market, the Asia-Pacific stock markets can provide another option, with the Hong Kong stock market potentially being an attractive choice.

From the beginning of 2024 to date (as of June 21), the returns of Asia-Pacific stock markets have ranged from -7.7% to +29.7%, with a median of 3.8%. As of June 21, 2024, data shows that the expected price-to-earnings ratio of the Hong Kong stock market (represented by the Hang Seng Composite Index) is 9.3 times, indicating a relatively low valuation, with a stock market yield of 10.7% (=1/PE ratio of 9.3), ranking first in the Asia-Pacific market. The BEER of the Hong Kong market has fluctuated between 0.3 times and 0.4 times since the beginning of the year (i.e., within the range of +1SD to +2SD of the average from January 2015 to June 21, 2024), below 1.0 times, indicating that theoretically the Hong Kong stock market is undervalued.

Similarly, when comparing the stock and bond yields of the 12 markets in the Asia-Pacific region, the BEER values calculated by the Hang Seng Index Company all indicate that the stock market valuations of these markets are not expensive (relative to their bond yields), except for the Indian stock market. The median and simple average of BEER for the 12 markets in the Asia-Pacific region are 0.4 times and 0.6 times, respectively.

It is worth noting that U.S. interest rates have always been an important driver of the stock market, and expected changes can trigger market volatility. Since the Federal Reserve began raising interest rates in March 2022, U.S. stock and bond yields have been gradually converging. From the beginning of 2024 to date (as of June 21, 2024), the average BEER in the U.S. has reached 0.9 times (compared to 0.8 times in 2023). As of June 21, 2024, the BEER in the U.S. has risen to 1.0 times, exceeding its long-term average (+2SD from January 2015 to June 21, 2024), indicating that the current valuation of the U.S. stock market may be overvalued.

In summary, Asia-Pacific stock yields (excluding India) appear more attractive (relative to their bonds), with Hong Kong stock valuations being the most attractive. For global investors interested in diversifying their investments outside of the U.S. stock market, the Asia-Pacific stock markets can provide another option, with the Hong Kong stock market potentially being an attractive choice