This is according to Hermes’ Jonathan Pines, who says these stocks can only underperform from their current levels.
The slowdown in the Asia Pacific region over the past few years has caused its markets to lag behind their counterparts in the West.
According to FE Analytics, the MSCI Asia Pacific ex Japan index has returned 16.45 per cent over three years, compared with 40.49 per cent from the FTSE All Share.
Performance of indices over 3yrs
Source: FE Analytics
Pines, who runs the Hermes Asia ex Japan Equity fund, says this has caused the majority of investors to buy the "safest" defensive companies in order to navigate the volatility.
However, he adds that high demand has caused investors to pay over the odds for perceived security, and he warns that this will be their downfall when sentiment eventually turns back in favour of emerging markets.
"What can go wrong by buying these companies? It’s a good question as it seems strange not to buy quality companies with good earnings," Pines said.
"To put it simply, there are various asset classes available to investors, be it equities, bonds or property. Once you have decided which asset class you want, say equities, you want to buy the the ones that are going to outperform other equities."
"These are good companies and are by no means going to collapse, but because their share prices are so high, those non-cyclical quality stocks are not going to outperform their cheaper counterparts," he added.
Pines says one of the biggest drawbacks of defensive stocks is what will happen if interest soon turns back in favour of the region.
"The biggest factor that could change sentiment towards Asia Pacific markets is valuations," he said.
"If you look at parts of the region, certainly the likes of China and South Korea, their valuations are close to trough levels. When they hit those lows, the market starts to become very forgiving of any sort of bad news."
"That point isn’t far away and I think when it happens, the region will start to perform well again relative to developed markets."
"However, that doesn’t apply to every country in the region. Both the Philippines and Thailand are at near record levels, which will mean they underperform," he added.
The Hermes Asia Ex Japan Equity fund was launched in its current form as a UCIT in November 2012, however Pines has been running the strategy for private clients for nearly three and a half years.
Pines describes himself as a "quality agnostic" investor and says he is not in the camp of managers who are making the mistake of buying defensive companies at extraordinarily high prices, but then he will not just by any old bombed-out stock either.
"Now, the relative prices of consumer staples are similar to what they were during the financial crisis. That means that those prices are virtually the mirror image of the disdain they were held in during the dotcom bubble."
"I think that alpha can be best generated by bottom-up analysis; by buying companies that are attractively priced relative to their quality," he added.
One of the examples of a company that Pines says is overbought is Taiwan Semiconductor, which is in the top-10 holdings of 49 out of 84 IMA Asia Pacific ex Japan funds.
"Taiwan itself is not an overvalued market. However, Taiwan Semiconductor is a high-quality business so people have flocked to it, which means that it is now currently overvalued," Pines said.
A recent FE Trustnet article showed that anyone who invests in Asian or emerging markets funds will have a healthy stake in the Taiwanese firm.
Pines also highlights consumer staples stock Unilever Indonesia as another that is trading at an inflated share price.
"It is obviously a good company as its earnings per share have increased by nearly five times over 10 years, plus its tangible book per share has more than doubled," he said.
"However, its share price has gone up by 18 times over 10 years. What markets are saying here is that this is the best the company can ever be," he added.
Instead, Pines says he likes to find more fairly valued companies that offer him a degree of downside protection. This has led him to the Chinese port, Cosco Pacific.
"We hold Cosco Pacific because people hate China and people hate ports, so it is perfect for us," he explained.
Pines says that at its price it is attractive in absolute terms and adds that its return on equity has averaged 15 per cent since the mid-1990s. He also says it is undervalued against both its peers and relative to its own history.
