Asian equities' valuations dropped to a more than two-year low at the end of May, as regional shares were hit by concerns over monetary tightening measures by major central banks and supply chain disruptions.

The MSCI Asia-Pacific index's forward 12-month price-to-earnings ratio (P/E) stood at 12.6 at the end of last month, the lowest since March 2020, according to Refinitiv data.

Regional shares have faced bigger declines this year, as higher inflation levels stoked recession worries and lockdowns in China pushed manufacturers in countries ranging from Japan to South Korea to slow production activity.

The data showed the MSCI World index's P/E stood at 15.3 at the end of last month, pushing its valuation premium over the MSCI Asia-Pacific to 21%, much higher than the 10-year average of 14.8%.

"Valuations of Asian equities look attractive compared with those of developed markets," said Zhikai Chen, head of Asian equities at BNP Paribas Asset Management.

"We continue to favour high-quality companies with low debt, able to generate sustainable returns with sound or improving ESG profiles."

Region-wise, equities of North Asian countries were trading at much cheaper valuations, compared with South Asian peers.

The P/E ratios of Chinese and South Korean equities were about 9.4 each, while Hong Kong's was 9.9.

On the other hand, Thailand and Indonesia had higher P/E ratios of 15.7 and 15, respectively.

"South-east Asia is expected to deliver superior earnings growth than its North Asian peers as it benefits from post-pandemic recovery, higher commodity prices and still relatively accommodative central banks," BNP Paribas' Chen said.

Analysts have raised forward earnings on Indonesian and Singaporean companies by 2.3% and 1%, respectively, in the past month, the data showed.

Indian equities occupied the top spot in the region in terms of valuation multiples, with a P/E ratio of 19, despite concerns over higher inflation and a surge in oil prices.

"We think there are upside risks to yields on sustained inflationary pressures and the Fed's balance sheet contraction," Nomura said in a report.

"Historically, there has been a modest correlation between yields and (Indian equities') valuation multiples and a correction to 16-18x remains a possibility."

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Shailesh Kuber)