The Great Re-Rating: Uncorking Decades of Value in Asian Markets
A governance revolution is forcing hibernating giants (and small caps) to awaken… will the world finally take notice?
Dear Reader: In this post, I’ll discuss the current opportunity set in Asian markets and highlight recent catalysts that could make companies in this region compelling research candidates. Among them: Japan’s rules on low P/B companies, China’s amended Company Law, Singapore’s disclosure-based reforms, and South Korea’s new Commercial Code amendments passed in July 20251. The situations I’m seeing across these markets are extremely compelling. So, without further ado, let’s dive in.
So, where do we start? To understand the tectonic shift underway in Asian capital markets, let’s travel back to 1997.
The Asian Financial Crisis was a corporate near-death experience. For a generation of executives in Seoul, Tokyo, and across the region, the crisis seared a permanent lesson into their psyche: cash is king, and debt is the enemy.
This trauma created a generation of boards and management teams who piled up cash, refused to take on much debt, and saw paying money back to shareholders as risky and reckless.2
This fear-driven inertia became a cultural norm, leading to some of the largest and most unproductive corporate cash piles in the world.3
Fast forward to today.
Samsung Electronics, announced a three-year plan to return 50% of its free cash flow to shareholders, punctuated by multi-billion-dollar buybacks.4 Across the sea in China, Tencent pledged to repurchase at least HKD 100 billion of its stock back in 2024 alone, more than doubling the prior year's program.5
So, are these isolated acts of corporate behaviour, or do they signal a permanent, regime-level shift in capital allocation? Can a wave of top-down government reform finally break the psychological chains of 1997, uncork decades of trapped value, and force a fundamental re-rating of the world's most undervalued markets? Let’s dive into it.
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The Politburo's Put: When Governments Force a Re-Valuation
Asian governments aren’t suddenly becoming friendlier to shareholders by chance. They’ve been watching how countries like the U.S. and Australia built this lasting wealth, and now they want to copy that playbook.
Instead of relying mainly on exports and state-driven growth, they’re trying to build stronger local stock markets so their own people can invest, create wealth at home, and be less dependent on the ups and downs of global trade.
A Coordinated Push Across the Continent
In Japan, the change has been dramatic. For years, reform efforts were just gentle guidelines that companies could mostly ignore.6 But in March 2023, the Tokyo Stock Exchange laid down a hard rule: companies trading below a 1.0x price-to-book (P/B) ratio have to openly explain how they plan to use their money more effectively.7
This public “name and shame” tactic worked especially well in Japan’s consensus-driven culture. Apparently, it has pushed company boards to finally deal with old practices that hurt investors, like messy parent-subsidiary structures and cross-ownership schemes that mainly served to protect management instead of shareholders.
This reform wave is already well underway, but in the world of Japanese small-caps there’s still plenty of opportunity left to uncover. While large caps have made tangible adjustments, many smaller ones have delayed or partially implemented reforms.8
What about South Korea? In this country, the big issue is the so-called “Korea Discount”; the fact that Korean companies are often valued lower than their global peers because of weak corporate governance at the big family-run business groups, you know, the famous chaebols. Now, starting in July 2025, new laws will kick in that directly challenge how these chaebols are run. 9
The new law makes it clear that company directors must look out for all shareholders, not just the business itself or the founding family. It also tightens rules to limit the voting power of controlling families when picking audit committee members, and it requires that at least one-third of the board be made up of truly independent directors.
Meanwhile, China's amended PRC Company Law, this one was effective July 2024 and represents another important step in its long march toward a modern capital market. The new law enhances the duties of loyalty and diligence for directors, strengthens shareholder information rights, and explicitly promotes the distribution of cash dividends.10
Even Singapore is making changes. Its financial regulator, the Monetary Authority of Singapore (MAS), is shifting to a more flexible, disclosure-based system. The updated rules are designed to fit all types of companies; from big corporations to family-run businesses. The aim is simple: build stronger boards, make it cheaper for companies to raise money, and help lift their stock values.
A Behavioral Nudge of Historic Proportions
From a behavioral economics perspective, these government actions are a powerful "nudge." The trauma of 1997 created a potent cocktail of status quo bias and loss aversion among corporate boards.
Hoarding cash felt safe; returning it felt risky. The new policies are designed to flip this calculus. They introduce a new, more immediate, and more certain "loss"; be it regulatory punishment, public shaming, or punitive taxes, as Korea experimented with in 2014 to tax excess cash reserves. This new fear is finally potent enough to overcome the old one.
These governments are using shareholder value as a tool to achieve broader macroeconomic goals. By forcing trillions of dollars in stagnant corporate savings back into the active economy through dividends and buybacks, they aim to deleverage the state's role, create a domestic consumer class funded by investment returns, and build capital markets resilient enough.
The Flywheel Effect: Importing the American Wealth Machine
To appreciate the power of the change being unleashed, we must first understand the mechanics of the machine these Asian markets seek to emulate.
One lens to view the U.S. stock market's extraordinary performance over the past four decades is as a story of a powerful, self-reinforcing financial flywheel.
The U.S. Blueprint for Perpetual Motion
Under this view, the machine has two core components. The first was the spark: the U.S. Securities and Exchange Commission's adoption of Rule 10b-18 in 1982. This rule provided a legal "safe harbor" for companies to buy back their own shares on the open market, transforming share repurchases from a corporate curiosity into the dominant form of capital return.
By 1997, the total value of buybacks in the U.S. surpassed that of dividends, a structural shift that continues to this day.11
The second component was the fuel: the concurrent explosion of passive investing through market-cap-weighted index funds and ETFs.
When combined, some argue, these two forces created a virtuous cycle:
A company buys back its own shares, so fewer shares are left in circulation.
This makes its earnings look bigger on a per-share basis, which makes the stock look cheap.
As the stock price climbs, the company becomes a bigger part of major indexes like the S&P 500.
Since index funds have to buy more of the biggest companies, they keep adding to that stock.
This extra buying pushes the price up even further.
In plain English: the biggest companies get bigger just by playing this game, and the system keeps feeding itself. It’s like a built-in engine that keeps rewarding America’s largest corporations. Terry Smith put it best in “Passive Investing: The Self-Reinforcing Momentum Strategy”.12
I usually don’t like simple explanations of reality, but this argument has a certain elegance. True or not, something similar is beginning to play out in Asia.
The Flywheel Starts to Spin in Asia
This very dynamic is now taking hold in Asia, as demonstrated by companies that are embracing the new paradigm.
From a physics perspective, these reforms are providing the "activation energy" needed to shift corporate behavior. For decades, Asian boards have been in a stable, low-energy state of hoarding cash.
The regulatory push acts as a catalyst, providing a powerful jolt of energy to push them over the hump and into a new, more dynamic state of returning capital. Once the flywheel of buybacks, rising EPS, and higher valuations starts spinning, it will require far less external energy to maintain its momentum.
This will create a new class of "capital allocator" champions, and the performance gap between the best and worst allocators will widen dramatically, creating a fertile hunting ground for discerning stock pickers.
Why Buybacks Matter in Asia?
Buybacks in Asia are a credibility test, a governance signal, and a simple way to turn deep discounts into per-share value.
As Closeau Research brilliantly put it in a recent piece:
“(…) There are many reasons why this is the case. For starters, buybacks tend to separate real operators from those that are cooking their books; it’s extremely rare for frauds (frequently on HKEX) to have the cash to meaningfully repurchase stock. Additionally, buybacks practically serve as a filter on cash flow, capex intensive, struggling, businesses simply don’t have the capacity to repurchase stock. Finally, and perhaps most importantly, buybacks are indicative of whether a company is truly being run for the benefit of shareholders.
Japan and Hong Kong are rife with subsidiary listings or closely held companies where cash is siphoned to related parties of the insiders, or worse, used for low return M&A so executives can pursue an ill-conceived power trip. The last thing these guys tend to do is return cash to the shareholders, so the presence and execution of a buyback almost always removes these types of companies from a buyback factor strategy.”
“(…) In this context, the presence and execution of a buyback has huge signaling value in Asia. It shows management is serious about capital allocation and is committed to maximizing shareholder value.” - Closeau Research13
A Margin of Safety Written in Plain Sight
Now, the most compelling aspect of this thesis is the valuation chasm between Asia and the U.S. that represents a historic margin of safety.
The Great Valuation Divide
The table below quantifies this disconnect. While the S&P 500 trades at a premium valuation, justified by its high-growth technology constituents and a culture of aggressive capital returns, major Asian indices languish at discounts that are extreme by any historical measure.
This valuation gap is made all the more potent by the prevailing interest rate environment.
But I Could Be Wrong...
Of course, no thesis is without risk, and it is important to acknowledge the forces that could derail this re-rating.
In Korea, big family-owned business groups (chaebols) have a history of dodging rules. In Japan, companies often prioritize employees and suppliers over shareholders, which could water down reforms. Aging populations in Japan, Korea, and China could mean slow growth for decades.
Anyway, despite these risks, the sheer mathematical power of the situation is highly compelling for stock pickers.
The Next Generation of Value Creators
The alignment of political will, rock-bottom valuations, and the proven U.S. playbook for shareholder returns is creating an asymmetric opportunity, especially in small caps now undergoing transformation.
The real long-term advantage will come from figuring out which companies genuinely adopt these reforms to become the capital allocation champions of this new era.
In the coming weeks, I’ll be sharing investment write-ups on exceptional companies that are already embracing this new trend. Stay tuned!
Disclaimer
This newsletter (the “Publication”) is provided solely for informational and educational purposes and does not constitute an offer, solicitation, or recommendation to buy, sell, or hold any security or other financial instrument, nor should it be interpreted as legal, tax, accounting, or investment advice. Readers should perform their own independent research and consult with qualified professionals before making any financial decisions. The information herein is derived from sources believed to be reliable but is not guaranteed to be accurate, complete, or current, and it may be subject to change without notice. Any forward-looking statements or projections are inherently uncertain and may differ materially from actual results due to various risks and uncertainties. Investing involves significant risk, including the potential loss of principal, and past performance is not indicative of future results. The author(s) may hold or acquire positions in the securities or instruments discussed and may buy or sell such positions at any time without notice. The views expressed are those of the author(s) and are subject to change without notice. Neither the author(s) nor the publisher, affiliates, directors, officers, employees, or agents shall be liable for any direct, indirect, incidental, consequential, or punitive damages arising from the use of, or reliance on, this Publication.
On July 3, 2025, South Korea's National Assembly passed amendments to the Commercial Code, promulgated on July 22, 2025. These reforms aim to enhance corporate governance, protect minority shareholders, and reduce the influence of controlling shareholders in chaebols.
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