What this chart shows
This chart breaks down returns and valuations for developed and emerging market countries in Asia. On the vertical axis is the 10 year annualised return of each market, with the horizontal axis showing the percentile ranking of the current price-to-earnings ratio (P/E) of each country’s equity market, relative to its own 20 year history. For example, South Korea has delivered 8% annualised returns over a decade, and today’s P/E ratio is in the 56th percentile relative to its own historic valuation range.
The size of the bubble represents the market capitalisation of each market, which gives a reasonable approximation of a country’s weight in widely followed regional indices.
Why this is important
Much ink has been spilled in recent months over the polarisation of the US equity market, with the Magnificent 7 now representing one third of the S&P 500 index. While Asian equity markets look attractive to the US on a relative basis, there are signs of exuberance in certain areas.
While there is no one concentrated cohort of Asian companies dominating the regional indices, there is an increasing bifurcation occurring between countries that look expensive and those that look cheap. Some of the largest parts of the Asian equity market, such as India and Taiwan, have produced exceptional returns for investors over a decade, and today’s valuations reflect investors’ view that this can continue. Sat somewhere in the middle are other large constituent countries such as China and South Korea, that have produced average returns over 10 years, but very good returns year-to-date as government support for the former, and corporate reform in the latter, have improved domestic interest in their native equity markets.
Those left behind are the smaller country weights, including one former Tiger economy, Hong Kong, and three Tiger Cubs, Indonesia, Malaysia and Philippines. Their relative size in indices can cause them to be largely ignored or forgotten about, thereby creating an opportunity for truly active fund managers where low expectations offer compelling valuations. For both passive investors tracking regional Asian indices, and active managers that are not prepared to deviate from country weights, portfolios are skewed to those at the far right of the chart, where valuations are offering no margin of safety today.
Global markets came under strain as slowing growth, weak trade and rising long-term borrowing costs put pressure on governments and central banks alike. Policymakers now tread a fine line between easing to support demand and avoiding destabilising debt or financial imbalances.
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Markets are increasingly pricing in a Fed rate cut in September, possibly larger than 25 bps.
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US job growth slowed sharply: non-farm payrolls rose just ~22,000 in August (vs ~75,000 expected), with unemployment rising to ~4.3%.
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US stocks have been setting records (S&P 500, Nasdaq) as rate cut hopes bolster risk appetite.
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The SEC is stepping up enforcement against firms (especially smaller ones) connected with "pump-and-dump" schemes, particularly involving Chinese stocks.
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Long-term borrowing costs (gilt yields) have surged, with 30-year gilt yields reaching levels not seen since the late 1990s.
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Inflation remains elevated (UK inflation ~3.8% in July), putting pressure on the Bank of England’s policy – BoE expected to hold rates but perhaps slow its quantitative tightening steps.
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UK economic growth is weak or flat: zero growth in July, declines in manufacturing output, very modest growth over three months.
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There is concern about fiscal sustainability: rising interest rates and debt service costs, together with political pressure ahead of the November budget.
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France’s political turmoil deepened after the government collapsed over austerity plans, Fitch cut its credit rating, and investors signalled greater concern over state debt than corporate borrowers.
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The ECB and PBOC extended their €45 billion / 350 billion renminbi liquidity swap line through 2028, underlining continued cooperation between euro‐area and China on financial stability.
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In Europe, government bond yields are rising sharply in several countries (France, Italy etc.), reflecting concerns over budget deficits, debt sustainability.
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Some European companies (e.g. Inditex, Vistry in UK) are reporting weakening results amid consumer and housing sector pressures
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China’s central bank (PBOC) faces a policy dilemma: how to support a weakening economy without further inflating the stock market or capital flows and is likely to remain cautious about easing until clearer signals emerge.
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China’s export growth slowed to around 4.4% year‑on‑year in August (in US dollar terms), the slowest in six months, while imports also underperformed expectations.
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Japan’s government debt, at nearly 250% of its GDP, faces mounting pressure from rising long-dated bond yields, which, along with increasing social welfare costs, drove the nation's 2026 draft budget to a record high of around ¥122.45 trillion (approximately £680 billion).
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The Ukrainian war is spilling over into NATO territory, with Russian drones violating the airspace of Poland and, on a late Saturday, Romania.
