While China and India often dominate the headlines when it comes to business news and deal making in Asia, there are a huge range of opportunities spanning across Southeast Asia.
While China and India often dominate the headlines when it comes to business news and deal making in Asia, there are a huge range of opportunities spanning across Southeast Asia. Leading venture capital firms are increasingly taking note of the tech-oriented startups emerging in places such as Singapore, Jakarta and Manila, as evidenced in a recent roundtable discussion convened by the Wall Street Journal.
A couple of factors make South East Asia such a compelling story. Here’s why:
- Southeast Asia is urbanizing rapidly. The cities of Southeast Asia will support 81 million people by 2020, creating greater affluence through high workforce participation.
- It is bucking the ageing demographic trend. By 2020, almost half of Southeast Asia’s population will be below 30 years of age, providing an ongoing and steady stream of talent that will grow in experience and maturity each year.
- The ASEAN Economic Community (AEC). Designed to increase the community’s global competitiveness, the AEC member nations benefit from the removal of trade and investment barriers and increased intra-ASEAN trade. First conceptualized for launch in 2020, the roadmap for implementation of the AEC was accelerated, heralding a new era of enhanced trade relations within the region.
An exciting facet of the story is that opportunities in Southeast Asia are far from confined to a single sector or a single market for that matter, according to the Aurigin (formerly BankerBay) database of deals. We will try to review and highlight some of the more interesting investment activity we see happening around the western edge of the Pacific Rim.
The big economic story in Indonesia so far this year has been the dramatic move by the government to liberalize the rules for foreign investment, which had long kept foreign direct investment in Indonesia at the lowest level in Southeast Asia, when measured as a percentage of the country’s gross domestic product. Altogether, twenty-nine different sectors were removed from the government’s “negative investment list” which had severely restricted activity by foreign investors in those sectors.
The newly opened investment areas include service sectors, such as the restaurant and movie industry, which means that foreign investors are now provided with much greater access to Indonesia’s large domestic market – currently estimated as an $840 billion market opportunity.
We see this liberalization has already directly translated into an upsurge in opportunity, with a number of Indonesian sell-side deals being listed on the Aurigin database. Of the current deals, roughly 40 percent of the listings are for M&A transactions, 40 percent from companies seeking a capital raise and about 20 percent are project finance deals.
Malaysia in the last year has certainly raised some yellow flags for investors with concerns about corruption, political stability and overall economic performance. A long running investigation into mishandling of funds in the state run investment fund known as 1MDB has put the government of Prime Minister Najib Razak under the continuing spotlight, while 1MDB itself continues to struggle with meeting obligations on a debt burden estimated at more than $14.5 billion.
While the Prime Minister denies any wrongdoing and has so far managed to survive any direct challenge, the scandal has proved to be a destabilizing distraction. Combined with the weakness in fossil fuel prices, which has hurt Malaysia’s foreign currency earnings (as the second largest exporter of LNG in the world), Malaysia has seen its growth rate slow dramatically this year.
As Malaysia’s Central Bank Governor put it, in her most recent forecast, the country faces a challenging economic outlook in the medium term, with rising inflation along with reduced consumption and foreign direct investment. All these factors are threatening to bring the growth rate lower.
Nonetheless, we have seen a strong growth in the listings for investment opportunity in Malaysia. About 40 percent of the deals are companies looking for M&A transactions, 40 percent for companies PE investments and the remaining looking for project finance.
No matter what economic headwinds may have buffeted the world economy recently, and no matter how much the slowdown in China has presented a challenge to the developing economies throughout Asia, you wouldn’t think there was any cause for economic concern judging by the hectic pace of business investment and deal making in Singapore over the last 18 months. Last year was a banner year, with a total of more than 685 deals of note in Singapore (including M&A, PE/VC and IPO activity) worth more than $103 billion, according to a recent report issued by Duff & Phelps. And although the pace of deal making has apparently cooled off somewhat in the first half of this year, Singapore has still proven to be an active investment hub, with a total of 383 deals worth $43.4 billion recorded so far in 2016. Singapore has positioned itself firmly to create an attractive launch pad for multinational firms seeking proximity to the region from a stable and commercially sophisticated base.
We have certainly seen a similar strong showing when it comes to listings for mid-market investment opportunity in Singapore. With an economy dwarfed in size compared to Indonesia and Malaysia, Singapore has nonetheless managed to source nearly as many investment opportunities. About 44 percent of the deals from Singapore on Aurigin are M&A deals, 40 percent for capital investments and 18 percent project finance opportunities.
Follow us as we delve deeper into Southeast Asia and the prospects from the other countries in the region.