Corporate Governance

What do swimming scallops have to do with investing in Asia?

A lot, according to S. Joyce Li, CFA, a portfolio manager at Matthews Asia.

It begins with a cautionary tale.

“Do you know scallops are good swimmers?” she asked the audience at the recent CFA Institute Equity Research and Valuation Conference 2018.

“Many investors learn that fact from a listed company in an unexpected way. A few years ago, there was a big seafood producer in Asia that invested heavily in expanding their scallop farm. Everything seemed to progress really well. Until one day, the company put out a surprising announcement. A large number of scallops disappeared. How? The management said, ‘Well, they’re just great swimmers. Maybe they just swam away.’ That’s not the end of the story though.”

She continued:

“After the stock price collapsed, the management quietly issued shares to themselves. Then, a few quarters later, surprise again, the scallops swam back to help the harvest. The only one who benefited from this story was the management.

“Why am I telling you this story? After all, you’re not at a seafood conference. I’m telling you this story because horror stories like this is one of the primary reasons why people are so skeptical of investing in Asia.”

read on (source and credit)

https://blogs.cfainstitute.org/investor/2018/11/20/investing-in-asia-grasping-corporate-governance-nuances-is-key/