Photo: Reuters/Aly Song

On June 7, I cited three reasons to buy emerging Asian equities in Asia Times. The MSCI non-Japan Asia Index has returned about 7% in dollar terms since then vs. 2% for the S&P 500. Are Asian equities getting pricey? Here’s a table comparing the fundamentals of the two indices:

Source: Bloomberg

Based on Bloomberg estimates of company earnings, you can buy Asia (for example the AAXJ ETF which tracks the MSCI non-Japan index) for 13 times earnings, vs. 17.6 times earnings for the S&P. Even more impressive is price to cash flow. Earnings are something of a mystical quantity calculated by shamans called accountants, but cash is cash. It’s harder to fake. Price to cash flow for the Asian index is just 9 times earnings, vs. 14 times for the S&P 500.

The dividend yield on the Asian index is higher (2.32% vs. 2% for the S&P). But the dividend payout ratio is much lower — just 34% vs 73%. Asian companies are paying out more dividends, but still retaining more funds to plough back into their businesses. Asian companies also are less indebted; operating cash flow is nearly 8 times debt in non-Japan Asia vs. just 1.6 times in the S&P.

There are two parameters in which the S&P comes off slightly better. The first is Return on Equity (at 13.5%, vs 12% for the Asian index). The second is implied volatility, a key parameter of risk. The implied volatility on S&P options is around 10% vs. 12% for options on AAXJ. Our conclusion: for a relatively small increment in risk, investors get a lot more earnings at a much cheaper price in Asia.

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.