● MXASJ down almost 7% from high, time to buy? With MXASJ (MSCI Asia ex. Japan) down 7% from its high of 580 to 540 currently, a key question is whether it is time to buy. Our Asian 6 factor valuation indicator has moved from 1% overvalued in December 2010 to around 6% undervalued. So, we are not yet at our “Buy” signal. The next factor we look at is whether there has been foreign investor capitulation. Significantly, yesterday alone was associated with US$1.68 bn of net foreign selling, and so far in February we have seen net foreign selling of US$2.88 bn in Emerging Asia ex. China, ex. Malaysia.
● Average net foreign selling in prior non-recession corrections was US$6.5bn. Figure 1 highlights that net foreign selling in the current episode of US$2.88 bn is still below the average net foreign selling of US$6.5 bn during the last seven non-recession corrections.
● But foreign investor capitulation is most evident in Thailand. While Thailand was associated with net foreign buying of US$1.9 bn in 2010, so far more than half of this inflow has been reversed with net foreign selling of US$1.16bn year-to-date. In contrast, net foreign selling in India at US$1.34 bn appears small in the context of net foreign buying of US$29.4 bn in 2010. Figure 2 also highlights that on a rolling 12-month basis, Korea has received 28% of all flows versus its MSCI weighting of 36%, and Taiwan has received 23% of all flows versus its MSCI weighting of 30%. India continues to be the most crowded trade with 43% of all flows versus an MSCI weighting of just 17%.