I just received a table of PE ratio of some stock markets around the world as shown in Table 1 below.

Table 1: PE ratios of stock markets around the world as on 14^th August 2016.

It can be seen that the market valuations of the Singapore (STI) and Hong Kong (Hang Seng) are the cheapest valuations in term of PE ratios by a wide margin, both at less than 12, compared to S&P500 of 20.5, Russell 2000 at 43, Nikkei at 20 etc., and Bursa at 18.

Why don’t we also invest in these markets?

I have a number of portfolios of Bursa stocks published in i3investor using the various fundamental value investing principles, methodologies and strategies which show amazing results over a period of three and a half years. They are described in my article regarding their latest returns as shown in the link below:

http://klse.i3investor.com/blogs/kcchongnz/98798.jsp

Why don’t we use the same successful investing strategies in Bursa and replicate them in the regional markets? What are the reasons that we should also invest in these regional markets?

Geographical Diversification

If you recall, diversification, including geographical diversification, is the only free lunch in investing. It is also befitting the maxim that “Do not put all your eggs in one basket”. Similarly, in geographical diversification, do not invest only in one country as there may be some specific risks in that particular country. Many would agree that there are some clear and present specific risks in our country; currency, political, racial, economic and social.

Hedging

It also makes a lot of sense to diversify our investment overseas for those who have accumulated substantial wealth, for those who will send their children to study overseas, and at the same time, a hedge against currency risk and protecting our true wealth. With all kinds of problems, corruption being the most serious, we will never know how bad our currency can become in the future.

Wider choice and cheaper valuations

Most importantly, geographical diversification provides more investment opportunities with wider choice of businesses to invest in. For example, the number of stocks listed in Hang Seng is more than 3000, three times more than that of Bursa. Best of all, the overseas market such as that of SGX and HKEX are much lower in valuations than that of Bursa at the present moment as shown in Table 1 above. We can find many good stocks to invest using the dividend investing strategy and the Magic Formula. There are incredible number of individual stocks which fit those investing strategies, including the net net current asset investing strategy which works well in these markets.

Corporate governance

The SGX and HKSE are much bigger, more transparent and markets with better corporate governance too. This bodes very well for investors, knowing that their investments are better protected by established laws and regulations against insiders trading, share price manipulations etc.

Tax advantage

In investing, we should be concerned about the after-tax return on our investments. Singapore and Hong Kong's corporate marginal tax rate is only 17% and 17.5% respectively vs 25% in Malaysia. A lower tax rate increases shareholder returns since shareholders enjoy a greater slice of the earnings. For example, with more earnings being retained, companies listed in these markets can also afford to pay a higher dividend or grow their businesses faster.

Conclusions

Diversification of our investment into the regional markets in Singapore and Hong Kong makes a lot of sense, firstly those markets are some of the cheapest. Within these undervalued markets, a simple fundamental screen has also revealed that there are many gems neglected and waiting to be discovered.

Those markets are bigger, more transparent, and better corporate governance and hence investors have wider choice of companies to invest in, and feel safer investing in these markets.  The taxation in those countries are also substantially lower than in Malaysia which would enhance the after-tax return on our investments.

For those who are keen to invest in the regional markets and require help, please contact me at

ckc14training@gmail.com