'Too Early' to Bargain Hunt Even as Asian Stocks Near Bear Market

Asian markets pared losses on Thursday after early setbacks following a selloff on Wall Street, but major benchmarks in the region are near bear market territory having fallen about 20 percent. Despite those drops, experts are warning against rushing in to bargain hunt.

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Thai employees monitor their screens at a private trading floor in Bangkok.

"Whether it's (price-to-earnings) or price-to-book value, Asian stocks are actually quite far from the recessionary values," says Kelvin Tay, Chief Investment Strategist for Singapore at UBS Wealth Management.

Tay says that on a price-to-book basis, Asian stocks normally bottom out at 1.3 times, whereas they currently trade at 1.8 times.

"So, is it really dirt cheap? Answer is no," Tay says. "It's just that, at this point in time, no one's going to go into the market to actually bargain hunt, I think it's too early anyway."

So far, the Hang Seng Index is down 18.5 percent from its July 4 peak for the year, while Korea's KOSPI has been among the worst affected, falling 19 percent from the peak of the year on May 2, and Japan's Nikkei index is nearing the lows hit after the March earthquake.

"Apparently, at the moment people are prepared to believe almost anything they hear and not prepared to sit around and wait to find out the truth, they just want to sell now, ask questions later," says Richard Jerram, Chief Economist at Bank of Singapore.

But the markets are beginning to get more attractive, according to Brad Jones, Asia Investment Strategist at Deutsche Bank.

"I think here in Asia... we were confronted with above average risk and yet we were being forced to accept below average return, and that was true in credit markets and in equity markets," he says. "Now given the events the last few weeks, I think that ledger has become slightly more balanced - we're still facing above average risk but there are now signs of a risk premium creeping back into the markets."

Others worry the U.S. government and the Federal Reserve have few policy options left to boost growth, and without a major change in direction investor confidence will continue to be undermined.

“We are running out of bullets,” says Adolfo Laurenti, Deputy Chief Economist Mesirow Financial in Chicago. “I still believe there might be some option for pro-growth policies in the United States... We may try to do a better job to inject confidence in this market, letting the political authorities and the agencies in Washington to become a little more encouraging to the business community.”

That lack of confidence in the current environment has many investors continuing to shore up their positions and looking for safety plays.

“We’ve tried to position our portfolios a little more defensively, we’re carrying a little more cash than we normally do,” says Rick Campagna CEO of 300 North Capital First in Los Angeles.

Some value hunters, though, aren’t staying on the sidelines.

“There’s great value in small cap. As you know small-cap outperforms large-cap and mid-cap over the long term,” says Christopher Mittleman of Mittleman Brothers Investment Management in New York.

Mittleman says he's been using the drops to shop for companies such as Revlon , which have strong cashflow and are now trading at cheaper valuations.