Stewardship | ~5 min read
Reshaping corporate Asia
New corporate governance reforms across Asia seek to align company valuations with other regions. Investor stewardship is emerging as an important lever to support this industry shift.
Some Asian markets have generally traded at a valuation discount compared to their counterparts in the US and Europe, observed through lower multiples1 along with lower return on equity and dividend payout ratios (see chart below).
This disparity is driven by a complex mix of factors including geopolitical tensions and different sovereign risk profiles. But a significant factor – and one that is often overlooked – lies in deep-rooted corporate governance practices across Asia. These include limited transparency and a historical tendency to prioritise broader stakeholder interests, such as affiliated entities or even government objectives, over shareholder returns.
Source: Bloomberg, CLSA, compiled by AllianzGI for FY 2024
However, a fundamental shift is underway. Asia’s governments, regulators and market participants are increasingly aligning efforts to strengthen corporate governance, notably in Japan, China and South Korea. This new wave of initiatives offers a compelling opportunity for active asset managers to drive meaningful change and unlock hidden value.
Priorities differ by country. For example, China’s State-Owned Enterprise reform includes adoption of a corporate governance framework to advance marketisation, competitiveness and accountability2, and Japan emphasises capital efficiency through its "name and shame" campaign3 by whitelisting companies disclosing the requested action plans. Meanwhile, Korea is tackling its chaebol-related4 problems with dividend tax incentives and broader reforms.5 All of these initiatives share the common objectives of leveling up market attractiveness, narrowing the valuation gap and enhancing shareholder returns.
Evolution through engagement
Successful reform and value creation depends on the collective efforts of all stakeholders. This includes asset managers’ active engagement with corporate management, voting on key governance resolutions, and reallocating capital from laggards to leaders.
Across our core holdings in Asia, we tailor our engagement approach to the priorities of each market, advocating for:
- Improvements in capital efficiency
- Transparency of reporting
- Alignment of management KPIs with long-term value creation
- Adoption of time-bound sustainability goals.
Many of these engagements also inform our voting recommendations.
Obstacles can arise. Sometimes the channels for investor voices to be heard are limited, and meaningfully influencing management can be a challenge. In response we have expanded our stewardship toolbox to amplify our impact. One example of this is our recent engagement with a regulatory body on corporate governance policy, and we also consider pre-announcing votes ahead of general meetings.
Through an active approach we seek to play a role in driving sustainable change across Asia’s financial ecosystem.
1 A calculation which assesses a company’s valuation
2China Daily – Regulator issues guideline to boost return, confidence of investors, 2024
3TSE, Tokyo Stock Exchange, Inc. (TSE) to Publish a List of Companies That Have Disclosed Information Regarding “Action to Implement Management That is Conscious of Cost of Capital and Stock Price” | Japan Exchange Group, 2023
4This refers to governance practices in South Korea’s many family-owned firms
5Financial Services Commission, Capital Market Reform - Financial Services Commission, 2024
