Matthews Asia - Active Engagement and Regulatory Change in Asia Is Releasing Value for Investors

Asia has seen a great deal of regulatory changes and developments in recent years, with countries such as China, India, Japan, and South Korea making progress in terms of governance and sustainability regulation. These changes have been driven by both government initiatives and the stewardship and engagement of long-term active investors, and have resulted in significant improvements in areas such as environmental protection, corporate governance, and transparency. Here are just a few highlights of the progress made in the last year. For more insight, see the Matthews 2023 Stewardship Report.

Corporate Governance

The significance of robust corporate governance frameworks to foster investor confidence and ensure sustainable economic growth shouldn’t be underestimated. Regulatory reforms and enforcement mechanisms actively promote transparency, accountability, and ethical business practices among corporations.

This drive toward improved corporate governance not only enhances the overall investment climate but also yields positive implications for investors. Companies with stronger governance structures are often more inclined to prioritize shareholder interests, leading to greater shareholder value creation. As a result, companies may increase share-buyback programs and dividend payouts to reward shareholders and attract additional investment.

In India, for example, wide-ranging structural reforms have focused on increasing the ease of doing business, making markets fair, as well as increasing transparency and market efficiency. The number and scope of capital market reforms show that India is serious about corporate governance. Regulators have been largely effective with stewardship codes, disclosure requirements and corporate governance frameworks. The Business Responsibility and Sustainability Report also became mandatory for the top 1,000 Bombay Stock Exchange/National Stock Exchange listed companies in fiscal year 2023, ensuring transparency by mandating various disclosures related to governance and sustainability. 

Capital markets reforms show India is serious about corporate governance

Regulators have been largely effective with stewardship codes, disclosure requirements and CG frameworks

Note: Chart shown above shows daily price for the Bombay Stock Exchange 100 Index for the January 1990 - April 2024 time period. Indexes are unmanaged and it is not possible and it not possible to invest directly in an index. 

Sources: Riscura, Matthews, Bloomberg; as of April 2024

Government campaigns in South Korea and Japan have also focused on bolstering corporate governance to attract investors and support market stability. In China, measures have been introduced to help clarify the qualifications of independent directors and the government’s state-owned enterprise (SOE) governance program aims to improve stock market valuations by enhancing transparency and profitability.

Environmental Developments

There have also been significant, recent environmental developments that bode well for investors in Asia. In China, the National Development and Reform Commission and the Ministry of Ecology and Environment both launched policies related to dual-carbon goals and green finance in 2023. The Securities and Exchange Board of India also updated the investment rules for ESG funds in response to the growing demand for green financing, and India’s central bank introduced guidelines that include climate target setting to facilitate transition financing.

Gender Diversity

Finally, the markets of Asia are making inroads to improve gender diversity on company boards and management committees. In Hong Kong, for example, there has been positive progress in the last 12 months in enhancing corporate governance practices, with a decrease in single-gender boards and an increase in the percentage of female directors.

These regulatory changes and developments in Asia are a positive sign of progress and demonstrate the commitment of these markets to improving governance and sustainability. As long-term investors and stewards of shareholder capital our work is never done, however, and it is important to continue to engage with companies and work with regulators to encourage further progress.

IMPORTANT INFORMATION

The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.