A Japan-inspired Strategy Spreads Across Asia, Boosting Shareholder Returns and Market Valuations
A Japan-inspired strategy of seeking to boost shareholder returns, corporate governance, and market valuations is spreading like a wildfire across Asia. From Seoul to New Delhi, governments and regulators are hurrying to implement their own versions of Japan’s decade-long program of structural reforms that helped drive its benchmark index to a record high this year. These initiatives are often collectively referred to as the "value up" program, a term coined by South Korea.
The "Value Up" Program: A Timely Initiative
The timing looks to be fortuitous for investors, as 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 that the "value up" program can counter this threat.
How Japan’s Effort Worked
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 shareholder returns via a range of measures. Two years later, Japanese firms are returning more cash to investors, have 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.
Other Asian Countries Follow Suit
Korea unveiled its own "Corporate Value Up Program" in February this year, aiming to emulate Japan’s success and 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.
Early Results Mixed
The reforms are a "timely initiative from the regulators," said Vikas Pershad, a fund manager at M&G Investments Singapore. "This is a good example of how more regulation can be helpful, and I am optimistic." However, early results are mixed, with Korea’s benchmark Kospi index having dropped more than 7% this year, despite the introduction of new measures to enhance shareholder returns.
Opportunities Abound
Despite the mixed results, some fund managers see opportunities in the "value-up" trade. "It’s very important for 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.
Conclusion
The "value up" program is a significant development in the Asian market, with many countries following Japan’s lead in seeking to boost shareholder returns and market valuations. While the results are mixed, there are opportunities for investors to take advantage of these initiatives.
FAQs
Q: What is the "value up" program?
A: The "value up" program is a strategy of seeking to boost shareholder returns, corporate governance, and market valuations, inspired by Japan’s decade-long program of structural reforms.
Q: Which countries are implementing the "value up" program?
A: Countries such as Korea, China, India, Singapore, Malaysia, and Thailand are implementing their own versions of the "value up" program.
Q: What are the benefits of the "value up" program?
A: The "value up" program can lead to increased shareholder returns, improved corporate governance, and enhanced market valuations.
Q: How will the "value up" program affect investors?
A: The "value up" program can provide opportunities for investors to take advantage of improved corporate governance and increased shareholder returns.
