Wednesday, September 04, 2002

Asian Stocks On U.S. Exchanges

The Morgan Stanley Capital International index of Asian stocks outside Japan shows a 3% gain since the end of August 2001--not too shabby next to the 23% drop for the S&P 500.

Switch up the time parameters, however, and the picture changes substantially. Over a ten-year horizon, the S&P 500 has appreciated 110% (excluding dividends), while that same Morgan Stanley Capital International index has risen just 15%. Throw Japan into the mix, and Asian equities show a 21% decline.

The discrepancy could explain why some Asian stocks still look like bargains relative to their U.S. counterparts. Take KT, a South Korean provider of fixed-line, wireless and other telecom services. The stock, available to U.S. investors as an American Depositary Receipt (ADR), currently trades at 0.9 times sales. Contrast that with BellSouth and SBC Communications which carry price-to-sales multiples of 1.7 and 1.9, respectively.

At 13, KT's latest 12-month price-to-earnings ratio also looks reasonable relative to a five-year average multiple of 20. BellSouth sells for 18 times its trailing profits per share.

To be sure, comparing multiples across the Pacific may be of limited use. "[Asian] markets have a history of higher volatility, and the companies are smaller," says Subodh Kumar, chief investment strategist with CIBC World Markets, a Toronto-based investment bank. "Maybe valuations should be lower."

But Kumar is no bear on Asia. Instead, he prefers to focus on the growth aspects of investing in the region. Even with a slowdown in exports to the U.S. and Europe, he suggests, Asian countries will benefit from rising consumer demand within their own borders, as well as the surging economies of China and India.

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