The Asian crisis highlighted the extent of poor corporate governance and financial planning. After ...
The Asian crisis highlighted the extent of poor corporate governance and financial planning. After a period of resistance, these companies are showing their ability to change and adopt greater shareholder focus.
While restructuring is going on at all levels, (political reshuffling in Indonesia, regulatory changes in Thailand) it is the change in corporate governance that is most significant.
The break-up of inefficient conglomerates has emancipated highly profitable companies. The introduction of foreign partners in M&A activity is introducing better work practices. The enforcement of financial regulations is improving investor confidence.
The recent spate of board changes mean that companies are no longer so tied to the 'old family' connections. Even in Chinese banks improved financial management is becoming a driving force.
Traditionally, less than 10 families have dominated each equity market in the region. This concentration of power and close political links have caused some public companies to be run as play things fostering corruption and fraud.
During the crisis there was little opportunity for cronyism, however, now the economies are back on track fears are rising that it will reassert itself.
Hopefully the requirement for new capital should discourage this slide, and political change and corporate restructuring should weaken the links.
In the past year the region has seen political change. While political concerns may continue to impact market sentiment, positive news flows should maintain the upper hand. The current trend in outsourcing is a fine example. Outsourcing now involves everything from R&D, to design and technological advancement, and consequently enhances margins.
With the outsourcing trend being driven by global demand, companies that had suffered from over-investment now stand to gain due to improvement in capacity utilisation and efficiency. Furthermore these companies are prepared to increase investment to secure their place on the world stage.
Asia has entered a new growth era, with expected GDP growth in excess of 6.0% for the next two years. In the global "gold rush" for new technology the maxim is to be the one selling the shovels, and in this area NE Asia excels.
In this new growth environment the corporate demand for capital is rising. However, the retail investor has not helped in its placement. Their obsession with tech/internet companies has led to 'old world' companies being starved of funds. In addition by investing on margin volatility and uncertainty is increased. This environment hinders long-term strategic planning, impacting share price appreciation.
Asia is on the growth track but don't expect a smooth ride.
Mike Hanbury-Williams is director of Pacific Basin equities at Royal & SunAlliance Investment
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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