SEA follows Japan, Korea with market value reforms

As private wealth in Asia grows and investors increasingly prioritize strong returns and more disciplined use of capital, stock markets in Singapore, Thailand, and Malaysia are making efforts to boost valuations and attract more capital.

With basic regulatory compliance no longer enough to secure investor interest or increase market valuations, Southeast Asia’s indexes are following in the footsteps of markets in Japan and South Korea by making reforms.

Gary Tan, portfolio manager for the intrinsic emerging markets equity team at Allspring Global Investments, says markets in the region face slower long-term growth as AI disrupts key sectors. Capital has also become increasingly selective, while aging Southeast Asian populations have put more scrutiny on shareholder returns.

It’s a perfect storm of headwinds, in short.

“In response, regional regulators are pivoting from compliance-led frameworks toward proactive value creation to attract capital inflows and narrow valuation discounts,” he tells The Business Times.

Ray Choy, chief economist at Malaysian Rating Corp, agrees, noting that the density buildup of private banks, wealth managers, and family offices is heightening the urgency to reform. Rising wealth across Asia has also led to large cash reserves, which are now driving increased domestic interest in stock market investments.

“Asia is growing above the global growth rate by many measures, whether it is gross domestic product, corporate earnings, or population growth,” he explains.

But analysts warn that Southeast Asia’s relative lack of tech giants may limit how much these reforms can achieve.

Peer pressure and governance reforms

In 2023, the Tokyo Stock Exchange launched reforms to challenge cash-hoarding companies that were trading below book value to address their weak returns. This market-led mandate used targeted peer pressure to trigger an unprecedented wave of corporate share buybacks and larger dividend payouts.

Similarly, in 2024, South Korea’s Financial Services Commission and the Korea Exchange launched the Corporate Value-up Program to tackle the longstanding “Korea discount.” The market’s undervaluation issues had been driven by weak minority shareholder protections, poor capital allocation, and the dominance of family-run conglomerates.

See also: Asian tech stocks slide as investors question AI valuations

Seoul used governance reforms and incentives designed to encourage companies to improve shareholder returns and narrow valuation discounts.

Liao Yi Ping, portfolio manager at Templeton Global Investments, says South Korea’s approach was more state-led and incentive-driven because of concerns around concentrated ownership structures and minority shareholder rights.

Different strokes

Mind the gap

Mixed bag so far