Cracking the value problem in corporate Asia

Despite their commanding positions in local markets and even global niches, Asian corporates still trade at substantial valuation discounts to their US peers.

- Tan Min Lan

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.

To their credit, governments, regulators and state-owned firms from Japan to Singapore have pushed for top-down reforms in various ways over the past decades. One early successful wave was led by Temasek-linked companies around the mid-2000s. Singtel divested non-core assets like stakes in Singapore Post and Yellow Pages, while CapitaLand listed CapitaCommercial Trust amid a major asset monetisation push.

In Japan, share buybacks hit record highs on a regulatory push. Meanwhile, Chinese state-owned enterprises (SOEs) responded to government directives by lifting dividend payouts (to 30 per cent-50 per cent) and enhancing disclosures, prompting partial re-ratings.

Yet with the value problem proving persistent, this top-down drive is quietly gaining a second wind. Japan and Singapore are pushing harder while Indonesia aims to consolidate nearly 900 SOEs into just 200 in the next four years. Notably, South Korea appears poised for its most aggressive set of corporate reforms yet.

Will this capital market push deliver structurally higher valuation multiples and help unlock Asia's true value? The heavy lifting has only just begun.