JP Morgan's latest report on global trends in shareholder activism: Shareholder Activism in Asia: confrontation gaining momentum has found that while US shareholder activism activity has plateaued, activity outside the US continues to increase significantly and more particularly, that activism in Asia is gaining momentum with ten times the number of campaigns launched in Asia in 2017 as there were in 2011. 

Key Points

  • Rise of global activism: According to the report, international activist activity outstripped US activity in 2017 with 52% of activist campaigns (or 344 of 662 campaigns) launched globally during 2017 involving non US targets. JP Morgan states that it expects the trend to continue as institutional investors 'begin to flex their muscle more actively around the world and domestic investors continue to study their global peers and become more comfortable with the strategy'.

  • Trend toward 'large and mega-cap activism' set to continue? According to the report, over 60% of global campaigns in 2017 were initiated against non US targets with market capitalisation greater than $10bn (eg Third Point campaign against Nestle; Elliott Management campaigns against BHP and Samsung among). The report suggests that this trend also looks set to continue, commenting: 'No issuer, regardless of size or location is protected from shareholder activism any more'.

  • Evidence that shareholder activism in Asia is gaining momentum: According to the report, activist activity in Asia has risen substantially over the period 2011 to 2017. In 2011 ten activist campaigns were launched in Asia as compared with 106 campaigns in 2017, accounting for 31% of total non US activism activity, up from 12% in 2011. Last year 4 of the 10 most targeted non US countries were in Asia the report adds. Given the number of campaigns launched during Q1 2018 is in line with those initiated during the same time period in 2017, the report suggests that the trend looks set to continue adding that in 'a region where private engagement is still the preferred conduit for investor dissatisfaction, available data likely underestimates the true number of shareholder interventions'.

  • Drivers of change in the region? The report suggests that regulators are helping to drive change in the region by enacting reform geared towards the adoption of international best practices in investor engagement and corporate governance. 'A series of recently adopted corporate governance and stewardship codes, as well as listing rule amendments and others, are fuelling activism by encouraging investors to be more engaged, and companies to be more responsive and transparent' the report states.

  • Activism observed in all major economies in Asia: The report found that activism has now been seen in all major economies in Asia with campaigns more evenly distributed across industry sectors than in other regions. In 2017, Japan experienced the highest level of activity (32%) followed by Hong Kong (24%), Singapore (14%), China (10%), India (8%) and Korea (6%). The report comments that as activism 'continues to develop and solidify its place in Asian capital markets, we expect to see the total number of activist campaigns increase significantly and for activists to begin targeting companies in secondary Asian markets'.

  • Common themes in Asia activism: The report identifies a number of common themes in activism in Asia chief of which is board representation (which the report comments is a worldwide theme). Other themes identified in the report include: capital structure (eg return capital to shareholders; restructure debt) which accounted for 24% of activism activity in Asia in the period 2011-2017; opposition to announced deals (eg oppose acquisition, oppose merger, oppose transaction terms) which accounted for 14% of activity in the same period; and corporate strategy (spin-off business; split company; divest assets; seek sale or merger) which accounted for 13% of campaigns in the period.

  • Trend is driven by 'domestic' activists: Despite media attention given to high profile international hedge fund activists, the report comments, 'domestic activists have been, and remain, the main driving force behind shareholder activism in Asia'. According to the report, though a significant number of campaigns are still initiated by 'occasional dissidents', the emergence of specialist funds who pursue activism as a primary strategy, some of whom are adopting US activist tactics (eg white papers, campaign websites and shareholder proposals) where private negotiations are unsuccessful, is contributing to this.

  • US based activists targeting Asia? According to the report, though not the driving force behind the increase in activist activity in Asia, prominent hedge fund activist investors are increasingly launching campaigns outside their domestic markets, including in Asia eg 3 of the 6 activist campaigns launched by US based activist Third Point during the past three years targeted non US companies 2 of them, Japanese. Since 2015 and throughout 2017, Elliott Management has initiated 17 campaigns against non US issuers representing about 37% of all new campaign announcements during that time period. Recent targets include companies based in South Korea and Hong Kong the report notes.

  • Time for Asian companies to adopt a proactive approach? The report suggests that given the trend towards increased activism in the region, Asian company boards should consider adopting a more proactive approach to engaging with and communicating with activists and shareholders.