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A Letter from Asia: The Privilege of Rapid Growth is Not Without Challenge

By Glenn Osaki, President – Asia, MSLGROUP

It is not hard to see why the 21st century has been coined the “Asian Century” as the region continues its upward march. Concentrated population growth, increasing educational levels and the rapid advance of urbanisation are all driving GDP expansion. According to the World Bank, Asia is the engine driving global economic growth—far more than any other region in the world—contributing upwards of 40% of the growth worldwide. This in turn is creating a growing pool of home-grown institutional and highly affluent retail investors.

In 2014, Asia is expected to surpass North America as home to the greatest number of people with investable assets valued at over $1 million, according to a report by Capgemini and RBC Wealth Management2. The combined wealth of Asia-Pacific’s millionaires currently stands at about $14.2 trillion.

Alongside that, as of October 2014, equity market capitalization across Asia totals more than $20 trillion—more than Europe, Middle-East and Africa (EMEA) combined (nearly $13 trillion); although less than the Americas, which is more than $30 trillion. In 2012, the region saw $198 billion in new capital raised by initial public offerings in Asia, compared to $102 billion across EMEA combined and $234 billion in the Americas.

While this may look like bonanza territory for corporate boards eyeing Asia’s stock markets for growth funding, the reality is that accessing this capital and retaining investors over the long term may not be as easy as it has been in the past.

Companies seeking to tap into Asian capital markets can no longer rely on being able to simply ride the coattails of economic growth. Today, there is strong competition for investor funds, with 24,200 companies now listed on Asia’s stock markets – nearly the same as the rest of the world combined – with 10,292 in the Americas and 9,723 in EMEA (as of October 2014)4, all competing for the attention of institutional and retail investors who are much more sophisticated and discerning than in the past.

What’s more, MSLGROUP’s survey indicates that institutional investors in Asia have higher portfolio churn than other regions, with 60% of those interviewed holding less than half of their portfolio for more than a year. These results suggest that these investors appear to have a shorter-term horizon and if they are unhappy with a company’s performance they may be more open to liquidating an investment.

Taken together, these results, i.e., the high portfolio turnover rates observed and the fact that investors in Asia have a far greater choice of investments today, suggest that investors in the region can be more selective where and for how long they allocate their investor capital.

While the majority of respondents in all geographies were in agreement that investor communications have improved over the last five years, respondents to MSLGROUP’s study in Asia were less convinced, with investors in China far more likely to believe that investor communication has worsened.

The survey results suggest that there are a number of areas that have become more important to investors in Asia in terms of influencing their investment decision-making process. Among these is a clearly articulated equity story.

Companies must be able to do a good job of telling their equity story—no surprise. Perhaps more interesting, however, is the importance investors in Asia appear to place in media, whether that be traditional or digital. The vast majority, 86% of the institutional investors surveyed in Asia, consider a strong media image to be an important non-financial factor in driving a company’s valuation. Companies that take the time to extend their awareness through an appropriate media relations strategy have the opportunity to benefit from a greater share of mind among investors.

Beyond the equity story, there also appears to be a clear appetite for companies that take their environmental, social and governance (ESG) behaviour seriously. The results of our survey indicate that investors in Asia are also looking for more sustainable growth, suggesting that those companies that embrace ESG and incorporate a sustainable approach into the fabric of their businesses will have the chance to benefit from access to a broader group of investors. Taking the time to clearly report ESG performance is likely to grow in importance as we start to see increasing regulatory requirements such as those the Hong Kong Stock Exchange is looking to bring into effect in 2015. The proposed regulations will require companies to either report on a set of core criteria in terms of their ESG commitments, or if the decision is taken not to report, management will have to provide an explanation as to why the company is not reporting.

The opportunity of a burgeoning pool of funds available for investment does not come without challenge. In such fastpaced markets, there will of course be a tension between short-term performance and long-term growth. It is imperative that corporate executives meet the needs of Asian investors when it comes to communicating both in form and content, if they are to achieve a balanced shareholder base that includes investors from the region, and, most importantly, a fair market valuation.

MSLGROUP Global Institutional Investors Insight Report 2014 by MSLGROUP

Glenn Osaki

 

Glenn is a 25+ year MSLGROUP veteran. An experienced client counselor, he has advised leading politicians, as well as CEOs and other leaders in some of the world’s largest companies, on critical issues related to communication, branding and marketing. A multiple award-winner himself, Glenn is regularly asked to judge world leading recognition programs. Follow him on twitter: @gosaki

 

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