Business model differentiation, dividend rates and ESG all areas to exploit
This article was produced in association with ELITE Connect. It was originally published on the ELITE Connect platform.
Encompassing a broad range of regions and countries under its umbrella, the emerging markets sector presents both challenges and opportunities for its company IROs.
A common misconception is that IR functions at companies in emerging markets aren’t as advanced as those of their developed market counterparts. Not so, observes Guy Gresham, head of global IR advisory at BNY Mellon Depositary Receipts.
‘Emerging market IR runs the full gamut of sophistication,’ he says. ‘There are clear examples of IR departments that are just as progressive as those in developed market corporates, and sometimes more so. This is especially the case for sectors such as oil or financials, where multinationals are domiciled in emerging markets and need to compete for investors on a truly global stage.’
One company with experience of this is Taiwan Semiconductor Manufacturing Company (TSMC). Based in Taiwan but operating with a strong global presence in developed markets, it’s crucial the company competes effectively for buy-side interest.
‘Measures such as increasing our cash dividends – by 50 percent last year and by a proposed further 30 percent in 2016 – demonstrate not only our ability to make money, but also our conscientiousness in returning cash to shareholders,’ says Elizabeth Sun, senior director for corporate communications at TSMC. ‘I’ve received overwhelming support from investors that are especially pleased with our performance, especially given that many good dividend-paying companies are stagnant while we’re still growing. IR teams in emerging markets need to really harness positive messages like this.’
While the knock-on effect from China’s slowdown has hit global markets as a whole, its effect on emerging markets, especially those companies operating in countries that are also experiencing domestic issues, such as political instability, can be more severe. The trick for successful IR activity here is to focus on business model differentiators, as Gresham notes: ‘There is definitely more opportunity for companies within emerging markets if they can clearly differentiate that they’re not tied completely to their domestic economy, or they can diversify outside of the markets they are being associated with.’
One area where emerging market companies are thriving is ESG. ‘We’re seeing great enthusiasm among emerging market companies to be well versed in their ESG story and how to best articulate it to the investor community’ comments Gresham. ‘It can be a good means of demonstrating to interested investors how you’re different from other companies within your country or sector. It’s also a way of engaging with investors that may not be looking at your country or industry, but enjoy a degree of familiarity with your ESG offering.’
Emerging markets’ IR event activity
Source: BNY Mellon 2015
Investor days: Emerging market companies favor investor day events at both ends of the frequency scale: 7 percent held more than 10 investor days, compared with the global average of 4 percent. By contrast, globally 41 percent of firms hold no investor days, compared with 33 percent of emerging market companies.
Company one-to-ones: Emerging market CEOs and CFOs participate in fewer one-to-ones, with an average of 26 and 65, respectively, compared with the global averages of 39 and 72.
Roadshows: Emerging market companies are invited to a greater number of conferences, with 46 percent invited to 20 or more compared with 36 percent globally. Of these, 14 percent participated in 20 or more, compared with 9 percent globally.
