In light of the latest developments on the stock exchanges, investors have become more hesitant regarding emerging economies. “Now is precisely the time that emerging economies need to solidify their corporate governance and eliminate obstacles. This is the only way in which the assessment of companies by international investors in emerging economies may be improved,” says Prof. Christian Strenger, Academic Director of the Center for Corporate Governance of HHL Leipzig Graduate School of Management. On September 24, 2015 he opened the conference ‘Corporate Governance in Emerging Markets – How to Gain the Competition for Investors?’ in Leipzig.
During a pause in the proceedings we interviewed Dr. Asoka Wöhrmann, Chief Investment Officer at Deutsche Asset Management & Wealth Management Investment GmbH, about the current VW case, investing in uncertain times, and about the potential of the emerging economies.
Is Volkswagen a prime example of failed corporate governance?
It is too early to attest that VW is a complete failure of corporate governance. However, it may certainly be part of what is going on. We have to be careful, particularly when looking at the semi-public interdependence with the Federal State of Lower Saxony. Is this failed corporate governance? What happened might not be related to corporate governance so much. You have to admit, however, that VW did not exactly excel at corporate governance-related topics in the past. Nonetheless, the group improved a lot in its perception of what good business management means.
VW was committed to becoming the world’s largest car manufacturer. It has become apparent that VW has overstepped when choosing the tools to achieve this goal. The fact that the company lost EUR 38 bn in market value over two days shows that the investors had other expectations for VW. The brand certainly epitomized the globally active German industry. The case of VW has led to a collateral damage as seen in the DAX index. I hope that this flaw will not result in a decrease of the DAX in the medium term.
What are your tips on investment in these times?
First of all, let me say this: All of us perceive the risk to be much higher than it actually is. Since the financial crisis of 2008, people have shied away from investments. Not just the general public, even corporate manager from all over the world. So this is not just a German or Leipzig-based phenomenon, it spans across the globe. There is a tendency in uncertain times that people prefer to leave their money in the cash box. With zero interest and positive inflation, people slowly lose their purchasing power. However, this is something we do not see. This is the risk. To avoid it, you have to invest in a calculated manner. When doing so, it is important to define a time frame. I represent the philosophy of a medium and long-term investment strategy. For this, I have to be sure that I will not need the funds to be invested in the medium and long term to pay for trips, my children’s education or other expenses so that I can use them for my provisions for old age or a different type of investment. This means you must be able to spare the money. If you ask me, I would currently recommend personal equity plans and professionally managed mixed funds. With the current interest situation, I would think about acquiring real estate if I have the means necessary. This would be a good retirement provision.
Will DWS remain committed to emerging economies in uncertain times?
We are committed to emerging economies. For two years, however, we have been dealing in these regions in a more defensive manner. We are building up expertise in emerging economies, for instance in Asia. The economic dynamics in Asia are not reflected in the markets just yet. There is a high need for economic restructuring. The perception of corporate governance-related topics in emerging economies can improve. In this context, we must think on a long-term basis and build up expertise. We can no longer solely invest from Europe and the U.S.; we must be present on the local markets as well. Emerging economies are not just important in terms of local investments, they also influence the economic dynamics in Western countries.
More information and statements about the conference ‘Corporate Governance in Emerging Markets – How to Gain the Competition for Investors? you can read here.