Rush to ‘Value Up’ May Be Asian Stocks’ Best Defense From Trump

(Bloomberg) -- 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. 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.

“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.