“CalPERS Withdrawal from Asian Markets Counter Productive”

“CalPERS’ decision to withdraw investment from the emerging markets of South East Asia  viz Malaysia, Indonesia, Thailand and Philippines is counter productive and not in the interest of its own shareholders.” says Dr Madhav Mehra, President World Council for Corporate Governance.

In his interview with BBC World Dr Mehra stated “Emerging markets in South and South East Asia represent some of the most innovative companies engaged in people- oriented businesses applying best practices in corporate governance and developing new business designs and products that offer the best prospects of value creation for investors.” CalPERS – US’s largest pension fund with assets of over $15 billion - has already banned investments in India and Pakistan. CalPERS’ explanation of their decision to be the result of their continuing effort to withdraw from unethical investments “sounds hollow on the face of Enron’s record. CalPERS admit Enron has caused them loss of $105 millions. Enron is not a one off case of fraud. Its auditors have claimed that the accounting practices used to cover up were within the law and are followed by thousands of US firms”, asserted Dr Mehra.

Dr Mehra added, “It is also difficult to justify withdrawal on the grounds that these countries are low on performance, transparency and political stability. Some of the knowledge based pharmaceutical and telecom companies have outperformed despite recession. Whilst one can admit some political turmoil in Indonesia and Philippines, there is no serious political instability in the 4 other countries. Certainly, despite its other problems, India’s record of democratisation is unmatched.

In regard to standards of transparency when there is so much evidence of cooking the books in developed economies, it is wrong to single out a few South East Asian economies and punish them for such lapses.

The withdrawal appears more likely due to the risk factors in these countries. CalPERS’ concern for the investor, therefore, is quite understandable. Nonetheless, one must realise that stability is the thing of the past and that rapid obsolescence, demographic changes and shift in public values have profoundly changed the competitive environment. Markets of 21^st century are driven by aspirations of innovation and sustainability. Short term focus on profits is the surest way for shareholder value destruction.

This decision will dampen the efforts of Alan Greenspan to resuscitate the US  economy. There is already an investment famine in Asia. The unprecedented increase in dollar reserves of these Asian countries to almost $1 billion mark is an indication that they are no longer buying US products. Withdrawal will suppress the demand further.

In any event, investment decisions have to be based on the policies of companies and not countries. You cannot outlaw a whole nation because of the failings of a few. You have to judge each company on its own merits. It is not significant that the countries that have been banned by CalPERS represent some 25% of the world population. What is significant is that it is the 25% that are the potential powerhouse of pent up demand needed to lift the US economy out of its current recession.”

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