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A Lesson in Recovery: Asian market volatility since 1988- Insight into Future

​The current downturn in Asian equity markets has seen a lot of investors witness substantial erosion of their portfolios. There is also a lot of noise from naysayers and prophets of doom, who are advising investors to stay away from the stock market, take defensive positions, cut losses by selling current holdings and invest in alternate assets. The cacophony of noises and views can unnerve the calmest of investors and prevent them from taking rational decisions.

In our view, which is borne out by history and common sense, market downturns present good investment opportunity. The all-round irrational pessimism leads to good companies with solid fundamentals being undervalued and available at attractive discount to their intrinsic worth.

In the report we have tried to cut through the clutter and present a case to investors for sticking to their long‑term investment plans and utilizing the current downturn to maximize their investment returns. Historically, the following trends have been observed in equity market:

• ​MSCI Asia ex Japan has been among the best performing asset classes: Over long term, equity as an asset class tends to outperform others. MSCI Asia ex Japan index since its inception has been among the best performing asset classes.
• Avoiding herd mentality, key to maximizing returns: For a contrarian investor periods of frantic selling present a window of opportunity to maximize investment return. However, to avail of these opportunities, investors need to avoid the tendency to go with the herd.
• Increased activity in buyback market indicative of attractive valuation: 2016 has seen record buyback activity (40% higher till August 2016 than the whole of 2015). Normally firms make buyback offers when they believe shares are trading below their intrinsic value. Increased buyback activity clearly highlights the increased attractiveness of equity investments.
• Market upturns have been stronger and deeper than corrections: Upturns on average have lasted for a longer period, and had more strength and depth than downturns.

Reasons to be bullish on Asian equities: We are bullish on Asian equities and believe this is a good buying opportunity for the long term investor based on the following rationale:

• ​Upward revisions in earnings
• Bottoming of Asian economies and likely upward revision of growth estimates
• Upturn in Purchasing Managers Index
• Improving US economic fundamentals which will boost Asian growth prospects