Evaluating Emerging Market Stocks through a Governance Lens (MSCI)

Historically, emerging-market stocks are perceived to have lower governance standards than their developed-market counterparts. They are frequently less transparent, requiring investors to dig deep for relevant data. Some emerging-market companies also may disadvantage minority shareholders, particularly those firms dominated by controlling shareholders and those that are state-owned enterprises (SOEs). How can institutional investors address these issues?

We have previously discussed how active equity managers can integrate environmental, social and governance (ESG) data and ratings into the investment process for developed-market portfolios. Now, we extend this approach to emerging-market portfolios, particularly focusing on governance issues. It’s not easy, as some companies may not make detailed company-level information readily accessible to all investors. Some elements for integration may include shareholder-manager alignment, voting rights, compensation incentives and accuracy of financial statements. READ MORE

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