From Seoul to New Delhi, governments and regulators are hurrying to implement their own versions of Japan’s decade-long programme of structural reforms that helped drive its benchmark index to a record high this year. While these initiatives vary, they are often collectively referred by the term coined by South Korea: “Value Up.”
The timing looks to be fortuitous for investors: Donald Trump’s election victory this month and his adversarial trade policies threaten to undermine Asia’s economic growth and corporate earnings. There are already some signs “value up” can counter this threat.
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“When I present to my clients, I tell them that there are five great themes in Asia” and one of them is corporate reforms to enhance shareholder returns,” said Sat Duhra, a fund manager at Janus Henderson Investors in Singapore, who manages $1 billion. “This is one factor that can help Asian markets.”
The swelling tide of “value up” can be traced back to Japan’s effort to improve corporate governance that began more than a decade ago. Despite a lack of success early on, investors began to take notice from 2022 when Tokyo Stock Exchange started to pressure companies to boost shareholders’ returns via a range of measures.
Two years later, Japanese firms are returning more cash to investors. They have also boosted the number of women on boards, become more open to working with activist investors, and unwound some of their cross-shareholdings. The Nikkei 225 Stock Average climbed to a record in March, finally shaking off three decades of inertia.
Korea unveiled its own “Corporate Value Up Program” in February this year, aiming to emulate Japan’s success and also counter what’s known as the “Korea discount” where its companies have lower valuations than their global peers. Chinese regulators released guidelines this month to enhance corporate valuations, while Indian authorities directed state-owned enterprises to boost dividends. Singapore, Malaysia and Thailand are all reported to be considering similar initiatives.
The reforms are a “timely initiative from the regulators,” said Vikas Pershad, a fund manager at M&G Investments Singapore Ltd. “This is a good example of how more regulation can be helpful, and I am optimistic,” he said, adding that he had made this a talking point with his clients.
The need for some sort of sea change in how Asian companies treat shareholder returns appears obvious in retrospect. The MSCI Asia gauge has climbed 30% since the end of November 2014, but that pales beside the 190% surge in the S&P 500 Index over the same period.
One example of successful corporate reform in Asia that aligns with the “value up” approach can be found in Prime Minister Narendra Modi’s efforts to revamp state-owned enterprises. Since being introduced in 2019, these reforms have led to increased dividend payouts and higher earnings. They have also boosted SOE’s share of India’s overall market capitalisation to near the highest level in six years.
Elsewhere in the region, the early results of “value up” look less impressive.
Korea’s benchmark Kospi index has dropped more than 7% this year even as the authorities have introduced a number of new measures to enhance shareholder returns. The Korea Value-up Index — which tracks “best-practice” companies on criteria such as their capital efficiency — has fallen about 5% since it was introduced two months ago.
“Some markets can make this work, but in others it just won’t be a driver to get inflows,” Janus Henderson’s Duhra said. In terms of some of the smaller countries, “it’s sort of clutching at straws. Just because markets have not been doing as well as some others, they say: ‘Let’s try and find a way of getting investors interested.’”
Still, some fund managers see opportunities in the “value-up” trade.
“It’s very important of investors to notice and to look for those opportunities because after we talk about macro, it’s about companies delivering on earnings and improving returns,” said Vicki Chi, a money manager for Asian equities at Robeco in Hong Kong. “We are very actively seeking and continuing to position for these opportunities in our portfolios.”
In Singapore, where a government task force has been appointed to review ways to boost market valuations, SGMC Capital Pte is optimistic about the potential long-term rewards for “value up” programmes. The Straits Times Index has gained more than 15% this year, outperforming the regional Asian benchmark and putting it near a record high.
“These initiatives can help unlock hidden value,” said Mohit Mirpuri, a fund manager at SGMC Capital. “Encouraging companies to narrow the price-to-book gap signals a stronger commitment to market efficiency and investor trust.”
