Several Asian stock markets are undervalued based on Warren Buffett (Trades, Portfolio)’s market indicator, including Singapore, Korea, China and India. We can observe this through two perspectives: global market valuation and value screener records.
Buffett’s ratio of total market cap to gross domestic product applies to global companies as well
The Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO reminded us that the ratio of total market cap to gross domestic product is “probably the best single measure of where valuations stand at any given moment.” While we normally associate the Buffett indicator to the U.S. stock market, we can also extend the ratio to global markets around the world, including European, Asian and Latin American markets. Figure 1 shows the market indicator for 18 global markets while Figure 2 shows the implied return based on the market valuation level.
Figure 1
Figure 2
Asian markets remain undervalued despite trade war fears
According to CNBC, China announced on Wednesday that the country will levy tariffs on 106 U.S. products, including automobiles and aircraft. Such tariffs could affect various U.S. companies, including electric vehicle manufacturer Tesla Inc. (TSLA, Financial) and aircraft manufacturer Boeing Inc. (BA, Financial).
China announces tariffs on 106 US products from CNBC.
Despite trade war fears, several Asian markets offer positive future returns based on their market valuation. Table 1 summarizes the implied return for seven Asian markets.
| Market | Implied Return |
| Russia | 30.40% |
| China | 28.50% |
| Singapore | 17.50% |
| India | 16.80% |
| Indonesia | 12.90% |
| Korea | 9.60% |
| Japan | 0.90% |
Table 1
Ben Graham Net-Net Screen lists four mid-cap companies with good value potential
The Ben Graham Net-Net Screen listed four Asian midcaps with good value potential: mixi Inc. (TSE:2121, Financial), Beijing Gehua CATV Network Co. Ltd. (SHSE:600037, Financial), Mabuchi Motor Co. Ltd. (TSE:6592, Financial) and Hirose Electric Co. Ltd. (TSE:6806).
Mixi, a Japanese online media company, has strong financial strength and high profitability. The company’s financial strength ranks 9 out of 10 as the company has no long-term debt. Other positive investing signs include expanding operating margins and a price-book ratio near a three-year low of 1.99.
The other three companies also have a financial strength rank of 9, primarily due to robust interest coverage. Despite this, Beijing Gehua has a modest profitability rank of 6 as its three-year revenue per share growth rate of -3.40% underperforms 66% of global competitors.
See also
Table 2 lists the value screener record as of April 4.
| Screener Name | USA | Canada | UK / Ireland | Europe | Asia | Oceania | Latin America | Africa |
| Ben Graham Net-Net | 115 | 76 | 41 | 228 | 459 | 20 | 3 | 7 |
| Undervalued Predictable | 61 | 8 | 28 | 81 | 55 | 5 | 21 | 4 |
| Buffett-Munger | 31 | 8 | 13 | 48 | 82 | 4 | 11 | 4 |
| Historical Low Price-Sales | 13 | 2 | 10 | 25 | 48 | 0 | 11 | 6 |
| Historical Low Price-Book | 12 | 3 | 12 | 33 | 69 | 1 | 16 | 8 |
| Peter Lynch Growth | 34 | 5 | 18 | 62 | 88 | 2 | 23 | 7 |
| Walter Schloss | 15 | 40 | 30 | 153 | 289 | 18 | 16 | 5 |
Table 2
Based on Table 2, we can see that Asian markets have the highest number of Ben Graham net-nets and Walter Schloss “deep-value” stocks, further suggesting that Asian markets are undervalued relative to stock markets from the other regions.
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Disclosure: I do not have positions in the stocks mentioned.
