Responsible Investor

Why being responsible does not mean underperforming in SE Asia

Investment opportunities are ripe, but it pays to know the CSR terrain.

Across the Asia-Pacific region responsible investment has so far only gained a foothold. The number of mutual funds is respectable at about 163, but assets under management are only worth about US$25bn (€18.3bn). This is tiny when compared to the US$2.3 trillion in assets reported by the Social Investment Forum in the US for 2005 or the €1.2 trillion in estimated assets in Europe. Add in private equity funds, hedge funds and SRI mandates and the figure for Asia-Pacific rises to around 180 funds worth about US$32bn. When Syariah (sharia) funds are included a further 90 or so products can be added. Syariah funds are ethical investments by definition and most popular in Malaysia, which has now developed the largest Islamic financial market in the world. Even so, the total net value remains no more than a niche. This is a real shame because there are plenty of Asian companies with excellent corporate and social responsibility (CSR) and there are huge opportunities for good returns on responsible investment portfolios across the region. Looking at two Asian SRI Indices

shows that the numbers speak for themselves. In Singapore the OWW Responsibility SRI Index has full-year returns to 22nd August of 34.4% compared to 33.4% on the benchmark Straits Times Index (STI). Peak returns for the full-year are 47% on both indexes. In neighbouring Malaysia returns were slightly lower but still respectable. Full-year returns were 29.0% on the OWW Responsibility SRI Index compared to
32.0% on the benchmark Kuala Lumpur Composite Index (KLCI). Peak returns are 44.5% on the former compared to 47.8% on the latter. Compare that to the 2.8% full-year returns on the UK FTSE4GOOD and 6.3% on the UK FTSE100 over the same period and you can see why Asia stocks offer such potential. The maximum return on FTSE4GOOD since August last year was only 13.6%, less than half what you can get on SRI stocks in Asia. Volatility has always been an issue for Asian investors who are still haunted by the 1997 Financial Crisis. But this is where responsible investment can offer an attractive defensive alternative.

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