SINGAPORE - While most Asian telecom stocks have outperformed their home markets in 2012, they are unlikely to repeat such stellar performance this year due to unattractive valuations and deteriorating fundamentals.

According to Nomura Equity Research, 2012 was a solid year for Asian telecom shares, up 9 percent in average, with 18 of the 35 telecom shares outperforming local indices.

The stellar performance was on the back of risk aversion among investors who chased stocks with high dividend yields.

But since January this year, Asian telecoms shares were mostly flat and were the third worst-performing sector in the month, just ahead of utilities and information technology counters.

There are a number of factors in play that resulted in the underperformance of the telecom shares in the region so far this year.

First, valuations of these shares at current prices are no longer compelling after a phenomenal rise in 2012. The sector is now on average trading at an expensive 16 times forecast price- earning ratio of financial year 2013 and dividend yields at only 4.5 percent, which is relatively low by historical standard.

Other negative factors include rising capital expenditure, competition and regulatory risks.

Nomura Equity Research said while 4G gained traction with around 25 million subscribers in Asia now, this has also seen capital expenditure rise this year by 10 percent to 20 percent for many Asian operators.

Among individual market, CIMB Research is negative on China's telecom shares as profitability could be affected by lower-margin 3G customers.

Indian telecoms could be weighed down by hefty license-renewal fees and stiff competition with the entry of new players.

On the other hand, earnings growth among Indonesian telecom companies could slow down to 4 percent in this year from 13 percent in 2012, owing to competition and heavy capital expenditure.