(Bloomberg) -- Asia investors following the global switch to quality stocks are not only suffering from striking underperformance but also a relative lack of candidates with the strongest balance sheets.

Just two of the MSCI Asia Pacific Index’s 1,543 members have a perfect Piotroski F-Score -- a financial-health assessment devised by an accounting professor to measure the overall quality of a firm’s financial position, data compiled by Bloomberg show. Professor Joseph Piotroski -- now at Stanford University -- based his gauge on nine fundamental signals of profitability, leverage and operating efficiency.

A further 44 members of the Asian stock benchmark score eight out of nine on the scale, indicating a firm has strong financials. Still, the U.S. market fares better with nine members of the S&P 1500 Composite Index achieving a perfect score and 61 receiving eight points.

There has been a notable divergence in the risk appetite of global equity investors over the last couple of months, with those in the U.S. and Europe shifting to favoring quality names. That is yet to happen in Asia, where investors continue to bid up shares of companies with the weakest balance sheets leaving the stocks of their stronger peers lagging behind.

A Goldman Sachs Group Inc. basket of Asia ex-Japan stocks with the most robust balance sheets -- based on measures such as leverage and liquidity ratios -- has slumped by over 11 percentage points against a cohort of weaker peers since the end of May. Conversely, the stronger U.S. basket has outperformed by over 18 percentage points and the European one by over 11 points relative to weaker counterparts.

Better Returns

Still, amid a clampdown from China on private enterprise and the spread of the delta variant in the region, it’s possible Asia investors will follow their global peers and seek out firms with the strongest balance sheets.

China’s Daan Gene Co. Ltd., which makes virus-diagnostic kits and whose shares have more than tripled since the start of 2020, currently scores a perfect nine on the Piotroski scale. The company has reported five straight quarters of record profits through March, mirroring the onset of the pandemic. It’s scheduled to release April-June results on Aug. 27.

South Korea’s Hanwha Solutions Corp., a manufacturer of solar energy components, is the only other Asian company with a perfect score. Its shares have more than doubled since January 2020. Companies in the region with a score of eight include SK Hynix Inc., Nidec Corp., Murata Manufacturing Co., Takeda Pharmaceutical Co. and China Molybdenum Co.

The Piotroski model is designed for active portfolio management, rather than a buy-and-hold strategy. The original paper simulated trading of about 14,000 U.S. stocks based on the system from 1976 to 1996, and its 23% average annual return beat most broad market benchmarks.

Despite the fact that riskier Asian stocks are faring better in 2021, an equal-weighted regional model based on the Piotroski score outperformed the MSCI Asia Pacific Index by over 3 percentage points this year through July, according to Bloomberg’s backtesting function.

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