Up, up and away! Photo: AFP

The rally in Asian equities rolled on this week as benchmarks around the region crested recent highs following heavy trading turnover and increased fund flows from US investors.

India’s BSE Sensex was up to a record high yesterday at 30,250.98. The Nikkei 225 Average hit its highest in 17 months this week before trading at 19,823.28 at 11:30am in Hong Kong, bound for a fourth straight weekly advance.

Elsewhere this week, Hong Kong’s Hang Seng Index and Singapore’s Straits Times Index both matched peaks last hit in July 2015. Meanwhile, South Korea’s Kospi Index built on a new record set this year, trading as high as 2,323.22 on Wednesday.

This week’s upswing extends a 2017 rally in markets across Asia-Pacific as investors pile in and snap up bargains following nearly 18 months of muted performance. Investors in US equities have also rotated into the region amid concerns that the bull market in the S&P 500 dating back to March 2009 may finally be running out of steam.

US-based funds that buy international stocks enjoyed an investment inflow for the 22nd straight week, adding US$7.8 billion in the week ended May 3 versus a US$4.3 billion sell-off in funds focused on the domestic market, according to Investment Company Institute data. The international funds have attracted more than US$70 billion so far this year, the most since 2015.

Increased appetite for international stocks may have triggered an uptick in Hong Kong trading as turnover topped HK$90 billion on Wednesday for the first time in five weeks.

The next leg of the rally in Asian equities may hinge on core fundamentals, however, as valuations across the region are starting to normalize. The MSCI AC Asia Pacific Index, which measures stocks in 13 countries in the region, traded at 13.6 times forward earnings through April 28. By contrast, the MSCI World Index was at 16.6 times and the MSCI USA at 18 times.

HSBC Asset Management global strategist Shaan Raithatha said strengthening in local currencies could add to returns, writing in a recent blog entry, “The investment case for emerging market equities is now less about anomalous equity valuation and is becoming more about economic and price momentum, as well as cheap currencies.

“But for now, relative to the other opportunities available to multi-asset investors, allocating to emerging market equities still looks attractive to us.”

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.