Value-up index announced
Korea Exchange released the details of its long-awaited Korea Value-up index.
As expected, not one non-financial holding company was included in the index, although many listed subsidiaries were. This was not a surprise to us, as we have not seen wholehearted participation in Corporate Value-up (CVU) by any of the nonfinancial holding companies with the exception of LG Corp. We expect this to change over time following pressure by investors, regulators and the stock exchange. ... more
India annual price discovery and Korea update
Following a draft proposal released in April, India’s market regulator SEBI recently finalised a market reform aimed at enhancing price discovery and liquidity for the nearly 70 holding companies listed on the country’s stock exchanges. ... more
Round trip, complete
It is rare to see a prominent investment theme go from zero to one hundred and back to zero again in the space of a few months. However, that is the story of Korea’s “Corporate Value Up” (CVU) initiative in 2024. ... more
A large retracement
Investors are less optimistic about the Korea Corporate Value-up program: ... more
Stock delisting in India
SEBI announced a consultation to improve the stock delisting framework.
SEBI’s main proposal would allow any company to be delisted via a fixed price tender offer, contingent upon 90% acceptance by all shareholders. This would be a great improvement on the current system of reverse book-building, which allows shareholders with small stakes to hold a transaction hostage by driving up the tender price to unreasonable levels, frequently resulting in the offeror walking away. ... more
It’s not too late
In November we identified a possible turning point in the under-performance of value, based on a sharp spike in the volatility of the Asia-Pacific Value/ Growth ratio, which resembled a similar event in the year 2000. The previous occasion marked the start of a long period of value out-performance.
This is important because a repeat outcome this time should be very positive for RV strategies, which naturally have a long value factor bias. ... more
A tailwind from dispersion
The main success factor for a relative value strategy is the absolute level of spreads, and as discussed extensively in recent newsletters, the narrowing of value spreads which started in November 2020 is still intact and contributing positively to performance.
A secondary success factor is a high level of dispersion, or the degree to which individual names within the spread universe are moving independently. This is because dispersion helps to mitigate the impact of the inevitable periods of overall spread widening which occur from time to time. It allows rotation out of names which are narrowing against the trend, and into other names which are widening. ... more
The outlier rejoins the pack
We have been writing for some time about the bottoming-out of the value factor which started in November 2020.
This trend has been observed globally and among the various markets of the Asia-Pacific region.
However, one market had been notably absent from the trend: ... more
Worst performance of value since 1926
We continue to have a strong conviction in a strategy of buying companies at 80-90% discount to NAV, with an expectation of a catalyst for value realisation.
While over the long-term this has proven to be a very effective strategy, it has performed poorly over the past year.
What could be the cause? We believe the global underperformance of the value factor is the main culprit.
We have previously illustrated this using benchmarks from MSCI and Russell Investments. However, to show just how extreme the current moves are, ... more
Dividend distribution tax and holding companies in India
A frequent topic of conversation was the upcoming abolition of Dividend Distribution Tax (DDT), which is significant for holding companies. ... more