Cracking the value problem in corporate Asia

SINGAPORE – Despite their commanding positions in local markets and even global niches, Asian corporates still trade at substantial valuation discounts to their US peers. The core issue – they generate lower returns on equity (ROE), reflecting less efficient use of shareholder capital. MSCI Asia’s five-year average ROE is 10 per cent, whereas MSCI US’ is over 19 per cent.

This value gap stems from a web of interlocking issues, including corporate governance gaps, inefficient capital allocation and unfocused balance sheets with non-core assets that drag returns. In South-east Asia, the “conglomerate discount” is well-known – Bain calculates that investors discount the value of large conglomerates by about 7 per cent to 43 per cent versus the sum of their parts.