Investors attach premium to risk management

PUBLISHED : Wednesday, 01 March, 2006, 12:00am
UPDATED : Wednesday, 01 March, 2006, 12:00am

Ernst & Young is urging the stock exchange to consider increasing mandatory requirements for listed companies to enhance their internal risk management to attract more international investors.

Partner Paul Go Kai-lung made the call yesterday as he released a global survey conducted by the accounting firm showing investors were willing to pay a premium for stocks of listed firms with risk-management measures in place.

'The survey result is clear - investors want companies with good risk management in place,' he said.

This should prompt the exchange to impose more mandatory requirements to enhance companies' risk management and increase the market's attractiveness, he said.

The survey interviewed more than 130 institutional investors worldwide managing trillions of dollars worth of portfolio. Ten per cent were from Hong Kong,

'The result showed 82 per cent of respondents were willing to pay a premium if they see evidence of good risk management,' Mr Go said.

He said 61 per cent said they would not invest in a company with poor risk management.

He said many of the exchange's requirements only include risk-management measures as best practices, which means it encourages the companies to adopt them but does not penalise those that fail to do so.

Making some of these rules mandatory would force all firms to adopt them, he said.

Mr Go said many Hong Kong and mainland firms' internal measures were up to world standards.

'Many H shares have made a big improvement in internal controls and risk management in the past few years,' he added. 'This is because the mainland authorities have been pushing state-owned enterprises to improve.'

The survey result showed 69 per cent of investors ranked transparency as the top priority when making investment decisions, while 65 per cent were concerned about the long-term track record and 58 per cent looked at the business model.

Twenty-nine per cent believed good risk management would help firms avert negative news, and 23 per cent said it would add greater financial stability.