Legend has it that the phoenix, a fabulous and mythical red and gold-feathered bird, spent hundreds of years flying the skies in a futile effort to reach the sun. Eventually it was consumed by the flames of a funeral pyre made of twigs set alight by the flapping of its wings, only to miraculously rise from the ashes to begin life once more.
Some might say Asian markets work in a similar way, rising toward the sun to be burnt seemingly to death, then resurrected to fight another day.
Crises have rained down on Asian markets ever since the miracle years of the early 1990s came to an end in 1997 with a spectacular financial meltdown. The markets did show signs of a comeback in 1999 and 2000, largely thanks to the high number of technology companies operating in the region, but the bursting tech bubble of 2001 soon put an end to that.
More recently, just as Asia was starting to regain some ground, progress came to a crashing halt with the emergence of severe acute respiratory syndrome (Sars). ‘Just when things were looking better for Asian share markets, along came Sars,’ says Shane Oliver, chief economist and head of investment strategy at AMP Henderson Global Investors.
Testing times
The Sars crisis has been the first real test of Asia’s stock markets since governments and regulators around the region started shoring up bank and financial regulations in response to the 1997 financial crisis. While Asian markets and companies are emerging relatively unscathed from this latest debacle, Sars temporarily crippled business activity in the threatened countries – China, Hong Kong, Indonesia, Malaysia, Philippines, South Korea, Singapore, Taiwan, Thailand and Vietnam – between March and June.
During this period, travel into and around Asia virtually stopped as offices and stock markets were closed and people were forced to wear masks in public places. One can only imagine the impact this would have had in London or New York.
Unsurprisingly, investor relations in these conditions was tough – no roadshows, no investor conferences and pretty much no face-to-face communication at all. And yet some companies managed to rise phoenix-like from the ashes of Sars, turning the disaster into an opportunity to demonstrate to investors their determination to keep them informed no matter what.
A Beijing-based, Nasdaq-listed tech company, AsiaInfo, was among those that treated the advent of Sars as a chance to demonstrate a commitment to transparent investor communication. ‘From the beginning we kept a close eye on how Sars was impacting our business and we were open to investor questions,’ says Lesley Zhang, director of investor relations for AsiaInfo. ‘It’s always our policy to keep open communication.’
Given the dearth of information about Sars from the Chinese government when the epidemic first came to light (the first case was reported in the Chinese province of Guandong last November but the rest of the world didn’t hear about it until much later), deciding what to communicate to investors – and when – was tricky.
By April more and more people had been affected and government warnings had become a lot more serious. But when sales started to drop and government decrees forced the closure of all its offices, it was time for AsiaInfo to go to market with the news, making investor communications about the impact of Sars on its operations a top priority.
‘In early June we realized Sars was going to impact revenue and so we issued a profit warning,’ recalls Zhang. And she notes, ‘Very few other companies did that.’
Zhang also maintained daily contact with investors regardless of the fact that AsiaInfo’s offices were shut. ‘They could e-mail me at home and all calls were forwarded to my mobile phone so investors could still contact me,’ she says.
AsiaInfo’s strategy evidently worked. ‘It stopped shareholders asking, What’s happening with this company?’ Zhang reports. And despite a predictable short-term drop following the profit warning, the share price has recovered to a greater degree than many other Chinese stocks.
Another company that came through the Sars ordeal relatively unscathed was online media group Sina Corp, based in Shanghai and also listed on Nasdaq. Sina tried to continue operating as normal throughout the ordeal. ‘We never stopped talking to people,’ says Chen Fu, Sina’s investor relations manager. ‘Sure, we cut back on meetings and conferences, but other than that it was business as usual. We were very frank with investors.’ Chen also explains that one of Sina’s business lines, SMS messaging, actually increased in revenue during the Sars crisis.
Western focus
Sina was particularly well positioned to cope with Sars because a sizeable proportion of its investor base is in the US and Europe. Thus management was already used to doing much of its investor communications via e-mail and phone. ‘The only thing that was affected was travel,’ Chen says.
A combination of eastern and western corporate cultures apparent in both Sina and AsiaInfo helped both companies focus on good investor communication. ‘Many of our managers are western-trained so we know how to work within western systems,’ says Zhang.
Moreover, their US stock market listings mean both these companies are more aware of good IR than the thousands of Asian companies without any significant exposure to foreign markets. Asian companies without overseas investors largely shut up shop in terms of shareholder communication during the Sars outbreak, leaving their investors without any information about how revenue and operations were being affected.
Clear evidence of this problem is revealed in research by Ogilvy Public Relations during the Sars crisis. Ogilvy surveyed more than half of all the companies from China and Hong Kong listed on either Nasdaq or the New York Stock Exchange. ‘All companies we were able to speak to felt that they were communicating as much as they could,’ says Jessica Barist Cohen, Shanghai-based director of investor relations for Ogilvy.
But it was a totally different matter for the companies Ogilvy was unable to talk to for its research. ‘In some cases we couldn’t even figure out who the investor relations person was. My guess is those companies were doing less [in terms of their investor communication],’ Cohen says.
It’s especially important for Asian companies to maintain good investor communication given the region’s track record of poor corporate governance and western investors’ traditional reluctance to engage with companies in the region for this reason. China’s unwillingness to inform the international community about the threat of Sars was a further stinging reminder to investors about at least some Asian countries’ persistent reluctance to keep international markets fully informed.
‘Overseas investors are very cautious. They want to know management is accessible and won’t hide in difficult times,’ argues Cohen. ‘People who aren’t sophisticated about China are nervous about investing in China. This is a wake-up call for Chinese companies that they have to do more than their peers in the US or Europe.’
Market rebounding
As the burgeoning Chinese IPO market will attest, Asian markets are recovering more quickly from the Sars crisis than they did from the Asian financial crisis, largely because there is no fundamental financial issue attached to Sars. A study by the China Commerce Federation shows that Chinese department store sales have risen 11.6 percent since Sars was brought under control. However, industries that were the worst hit by the outbreak, including travel and tourism, will take longer to recover.
Government initiatives aimed at kick-starting ailing sections of the region’s economies will also take time to have an effect. For example, Singapore has pledged S$230 mn to combat the effect of Sars on its economy; and Taiwan has just launched a multi-million dollar campaign aimed at jump-starting its tourist industry.
‘Some clients feel the general economy is still gloomy, and the push from the government may not result in immediate rewards,’ says Alison Chow, CEO of irasia.com in Hong Kong. ‘The benefits to companies may not be seen for a few months.’
Despite this, with foreigners now able to access China’s domestic A-share stock market for the first time, investors are becoming increasingly interested in Asian markets’ potential for growth, particularly given long-range forecasts for the region. ‘Our model shows that Asian markets are undervalued by about 10 percent,’ notes Oliver. ‘There is a reasonable case to expect Asian markets to outperform over the next five to ten years.’
Further work needed
Although China’s accession to the World Trade Organization, its softening stance toward foreign investors and the financial reforms put in place by Asian governments over the past five years, have all contributed to a relatively quick post-Sars recovery, there is still much work to be done before international investors have the same confidence in the region’s markets that they have in European or North American markets.
More Asian companies must embrace investor relations best practice if they want to attract and keep overseas investors on their share register. Competition for capital will become more intense as the market picks up and companies that don’t maintain a strong investor relations program risk having an unstable, poorly informed shareholder base. Share price valuations of such uncommunicative companies are also likely to be lower than management would like.
Meanwhile, fierce competition among Asian cities to be the regional financial center is increasing, with Hong Kong, Singapore, Shanghai and even Kuala Lumpur and Seoul all vying for the title. It is likely that governments that can prove to investors they are serious about ensuring transparent financial reporting, protecting the rights of minority shareholders and disciplining misbehaving companies will attract more overseas capital into their economies. This means countries in the region must keep up the pace of reform and work hard at opening up traditionally closed, family-run businesses that dominate much of the region.
Cohen likens the work needed in Asia to Ginger Rogers’ quip that she did everything Fred Astaire did, ‘just backwards and in four-inch heels.’ Asian investor relations officers must work the same way. They need to be doing everything western markets are doing, but the numerous obstacles put in their way – be they Sars, poor corporate governance, or whatever crisis befalls Asia next – mean the challenges facing Asian IROs are much tougher than those facing their US or European peers. Sars has been a gruelling test for Asia’s markets, which will ultimately help the region next time it’s forced to emerge from the ashes of yet another crisis, financial or otherwise. Let’s hope IROs in Asia are learning how to dance in stilettos.
Have webcam, will travel
At the height of the Sars scare, more than 100 nurses were confined to a Chinese hospital, caring for quarantined patients. National heroes all, they were reduced to tears when First Virtual Communications set up web conferences with their families.
What’s a mum to do when she can’t be with her children? For that matter, what’s an investor relations officer to do without face-to-face meetings with investors and analysts? As Sars hit Asia, many turned to web conferencing.
Bing Liao, VP of Asia operations for California-based FVC, says Sars drove rapid growth in the conferencing industry – the third big wave of techno-crisis management. The first wave consisted of firewalls and anti-virus software in the late 1990s. 9/11 triggered the rapid development of disaster recovery storage.
‘Now, in 2003, we see a similar type of contingency planning for real-time communications,’ Liao remarks. ‘With the Sars outbreak, going on a business trip suddenly wasn’t as simple as before. We’ve seen a tremendous interest in our products since the beginning of the year.’
Large-scale conferencing events like earnings announcements are well-established in IR. The next step is one-to-one or small group meetings over the web. For example, one of FVC’s products is Click to Meet, conferencing software with audio, video and document sharing. Just plug in a webcam, e-mail some invitations and there’s your meeting.
In a web conference interview from Hong Kong, Liao highlights bits of his PowerPoint slides, scribbles notes and moves windows around the screen as he talks. Meanwhile, Minji Koo, a Hong Kong PR consultant, whispers text messages in the margins. ‘You can see the design philosophy is to emulate a real meeting,’ she types quietly.
