Leave “reassuringly expensive” for the ad men. The widening valuation gulf between Asian and Western stocks has a lot of investors nervously eyeing the exits. Asia's forward price/earnings ratio, at 23 times, is teetering some 30 per cent above its three-year average; the US and Europe, at 16 and 13 times, are 7 and 11 per cent above trend, respectively. The spread between Eastern and Western p/es has averaged 4.5 over that period; now it is 8.6.
Things could go two ways from here. In the past, Asia's trajectory has been more or less out of its hands. Far from offering diversification, it has simply delivered a high-beta version of the returns from countries within the Organisation for Economic Co-operation and Development. Last year equities fell further; this year, they have rallied harder.
To some extent, that's to be expected: the volatile part of the global business cycle – capacity, inventories – has largely been outsourced to Asian manufacturers. But if ever the time had to come for equities to plot a more independent course, it would be now. Asia's economies are less leveraged, its banks better capitalised. It holds two-thirds of the world's reserve assets. Healthier fiscal positions have allowed governments at least to attempt to substitute for the sidelined Western consumer. Seven of the top 10 stimulus packages, as a percentage of gross domestic product, are Asian.