Investors are typically attracted to Asian stock markets for the growth story but they fail to assess and evaluate the risks involved, particularly in the area of corporate governance and business practices.
"Asian Eclipse: Exposing the Dark Side of Business in Asia" explores the unique corporate governance risks in the Asian context, using examples from different countries in East Asia and South East Asia. This book is written by Michael Backman from Australia, a leading researcher specializing in Asian corporate practice and a regular contributor to numerous leading newspapers and magazines.
- Difficulty of protecting intellectual property renders intangible assets moat useless.
- Rampant corruption in certain countries where positions in bureaucracy are effectively auctioned adds to increased 'business costs.'
- Shopping around for favorable auditor opinions.
- Media censorship prevents exposure of crooks.
- Corporate sponsorship in media also affects neutrality of views.
- Unique conglomerate structures like Chaebol and Keiretsu
- Excessive rights issue to prevent dilution of family ownership.
- Family troubles spill over to corporate affairs.
I will argue that some of these issues are not unique to the Asian context, and can happen anywhere. A sufficiently diversified portfolio and in-depth research are crucial elements in investing anywhere.