[I’m not sure highlighting academic work that supports any of my key investing criteria is a smart idea. Especially when it’s a favorable anomaly I’ve benefited from for years. In this case it’s the importance of brand (or market leadership as I prefer to express it). Oh well, sharing is caring, right?]
Yigit Atilgan (et al.) from the Sabanci University present work based on observations from the Korean, Japanese and Chinese markets on how company’s brand premiums are systematically undervalued.
Previous work on the U.S. uncovered this phenomenon some time ago and academics are still not quite sure why the stocks of companies with good brands do well (it should all be in the price), but they do. Of particular interest to investors however is how often these companies are undervalued and this anomaly seems to have been persistent over time.
In the case(s) of Asian companies the researchers discovered that a capitalization weighted portfolio of good brands from the three markets studied produced between a 6% and 10% annual outperformance. Which is such a huge number you’d think investors would have taken notice long ago, but they haven’t (Phew! Yet?).
For a look at the China brands in more detail go to P. 23 of the report which you can access via the following link Brand Premium: Evidence from Asia.
Of especial note is the ‘new brand’ effect i.e. brands that enter the list (for reasons they explain they use Interbrand data throughout) do especially well. Also worth noting how many Chinese brands are currently in the global top-100, almost none (Xiaomi #81, BYD #90, Huawei #96).
That’ll surely change over the next decade.
Happy Sunday.