How German-Asian Relations are Working

BerlinThere is possibly a great cohesion between German-Asian relationships, especially in the not-so-distant future. That is, if head of Ernst & Young’s business center in Germany, Thomas Wirtz is to be believed. He said that: “While small and medium enterprises have been lagging behind when it comes to investment in ASEAN, including Indonesia, this is likely to change as 41 percent of the respondents expect the market to be more important than BRICS [Brazil, Russia, India, China and South Africa] as well as other regions.”

In a recent EY report, Indonesia was ranked number five among top destinations for German investment after Myanmar, Vietnam, Cambodia and Laos, where business projects from the world’s fourth-largest economy are still relatively low, thereby presenting wider room for growth.

Indeed, just a few weeks ago Germany’s finance minister announced that it would be applying for membership of the Asian Infrastructure investment Bank – seen by America as being a rival to the World Bank.

It seems also that German companies are hoping that the economic environment in Asia is only going to improve for them in the future. This is due to the Asean economic Community which is anticipated to lead to a true “integrated regional economy.” And that isn’t just Indonesia. In fact, Malaysia has become an increasingly popular hub for German investment. For example, figures for last year showed the implementation of 387 manufacturing projects worth RM26.8 billion from Germany into Malaysia, particularly in electric and electronics, chemical and chemical products, petroleum products, natural gas and rubber products.

So if these trends continue, Germany could likely become a major player in the east overseas.

South East Asia: Focus on Vietnam

by Emilio Labrador
by Emilio Labrador

Vietnam is Asia’s third largest economic area. Currently, it has 600 million inhabitants, a figure that is set to increase to 700 million by 2020. This makes it a great investment hub for businesses looking at medium- and long-term investments.

Vietnam’s GDP is approximately €150bn. The streets are bustling with motorbikes and cars, indicative of many in the region having a steady income. This means poverty is decreasing. Still, there is a lot that can be done to make the area an even more attractive place for businesses to prosper. And that is where the government comes into play. The government needs to facilitate the business launching process, make infrastructure as smooth as possible and combat corruption where it exists. With this, economic growth will advance.

It seems that the government is already being cooperative in this endeavor. On November 17, a license was secured from the government by South Korea’s Samsung Electronics Co. Ltd., to expand its production in the northern part of the country. Samsung intends to invest up to $3bn in Vietnam for its handset trade, in an attempt to reduce prices and gain a higher edge in the competitive market against other Chinese rivals.

Asian Hotel Investments Boom

Jones Lang LaSalle’s Hotels & Hospitality Group (JLL) has revealed that the total value of hotel transactions in Asia has increased 145% in 2013. In fact, JLL claims the industry is having “its strongest year since the global financial crisis.”

Key markets such as Singapore and Japan are responsible for the growth, according to JLL Hotels & Hospitality’s Mike Batchelor.

“Hotel trading performance in Asia has experienced significant turnaround over the past two years and nowhere more so than in Singapore,” he explained. “This quarter’s landmark transaction of the Grand Park Orchard Hotel and adjoining Knightsbridge retail podium heralded the single largest asset deal in the city’s history. Going forward, we are aware of approximately $1.3 billion in exchanged contracts that will contribute to a very strong pipeline over the remainder of the year.”

Batchelor added, “As investor confidence in the region continues to rally, the availability of investment grade hotels is becoming increasingly scarce and, as a result, we are seeing buyers turn their attention towards markets such as Thailand, Seychelles and the Maldives. The Maldives is proving a particular hot spot where contracts have just been exchanged on what will be our fourth transaction in the country in as little as two years.”


Asian Companies Lead Investment in IT

According to AT&T, Asian companies are leading in IT investment, surging past their European rivals.

Research that was published by Insead reveals that Asia-Pacific companies are spending the majority of their IT budgets on the newest technologies, including mobile devices and the cloud. The business school explains that investment in emerging technologies like these increases competitiveness significantly.

Insead lists three primary categories: mobile internet-connected devices like smartphones, laptops and tablets; cloud services; and collaboration tools such as conferencing and instant messaging. On the other hand, there is the more traditional side of IT which includes hardware and enterprise software.

Asian companies have revealed their plans to increase their IT budget by 30% before 2015. While European companies also intend to spend more on new technologies, they will not be able to match Asian budgets.

Still, the report warns that Asian companies “must be careful not to rush too quickly to adopt new technologies” without a platform.

AT&T regional vice president Andrew Edison added:

“Increasing productivity is one of the primary challenges facing European companies today. New technologies like cloud offer great opportunities to do this, which some high performers are demonstrating.

“However, simply adopting the newest technologies is not the answer, and is in fact a great risk. The secret is a mature platform and avoiding the creation of ‘infrastructure spaghetti’ in the rush to adopt the latest tools.”


Real Estate Sector Attracts Investors to Indonesia’s Capital

China’s real estate market has been booming for quite some time, but new speculations are now pointing investors towards more southern regions.

A real estate forecast by PriceWaterhouseCooper and Urban Land Institute has revealed that Indonesia’s capital, Jakarta, will be the top place to purchase property in 2013, with the market surpassing even Hong Kong, Singapore and Sydney.

International investors have taken an interest in the region thanks to Indonesia’s remarkable economic turnaround over the past several years.

The survey says:

“Interest rates and inflation are under control, and while GDP is growing at around 6.5% annually, foreign direct investment is increasing at a much higher rate- 39% in the first half of this year. Driven by increased demand from foreigners and locals alike, office rents shot up 29% year-on-year in the third quarter, according to DTZ.”

The city’s growth and rising demand have bumped Jakarta up ten spots since its 2011 ranking. However, PwC warns that the market still has its risks. Inexpensive bank loans are a rarity, and it can be difficult to find a trustworthy partner. Disputed land may also pose a challenge.


Asia and Europe Discuss Economic Crises

As the threat of global economic fallout looms nearer, Asian and European leaders meet to discuss their options.

The meetings, which began in Bangkok this week, come as Asia’s economies begin to buckle under strains from the European debt crisis. Previously viewed as the strong points in a global crisis, the region’s concerns are deepening.

“With the ongoing economic difficulties of some countries in the Eurozone, I believe that our cooperation is even more crucial than ever,” said Kittiratt Na-Ranong, the Thai Finance Minister.

“Because Asia and Europe are closely knitted in terms of international trade and investment, one spark of crisis could cause turmoil in the other side of the world,” he continued.

Europe is dealing with internal arguments as well, amid talks of whether austerity or pro-growth measures will solve the region’s problems. According to a statement from Host Thailand, officials “expect that the European economy will gradually recover from the current crisis.”

Many agreed that the only solution demands that Europe pursue “growth-friendly fiscal consolidation as well as growth enhanced policies and further structural reforms. Ministers stressed the role of emerging economies in the global effort by further strengthening private consumption and implementing structural reforms to help boost domestic demand and growth.”

IATA Lowers Profit Expectations for 2012

IATA has lowered its profit expectations from its global airline earnings in 2012 to $3.5 billion, 28.6% less than its last prediction, stating its concerns of a net loss of $8.3 billion if the Eurozone crisis continues to worsen and global GDO growth falls.

IATA’s previous forecast was released in September, in which they revealed their expectations of a $4.9 billion profit next year. The airline industry leaders represents more than 200 airlines around the world, including Asia, Europe and the Americas.

“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion- the largest since the 2008 financial crisis,” said Tony Tyler of IATA.

“This admittedly worst-case- but by no means unimaginable- scenario should serve as a wake up call to governments around the world,” he continued. “Government policies need to recognize aviation’s vital contribution to the health of the economy.”

He added that even the best case scenario for next year “is for a new margin of just 0.6% on revenues of $618 billion. But the industry is really moving at two speeds, with highly taxed European carriers headed into the red.”

Shanghai to Become Regional Hub for International Commerce

At Shanghai’s 23rd International Business Leaders’ Advisory Council (IBLAC), over 500 government officials were told that the city is on its way to becoming a regional base for international trade within Asia’s economy.

“It’s the beginning of an Asian century,” Maurice Greenberg, the former chairman of IBLAC, said. “Shanghai is not only the major port of entry in Asia, but also the world’s trade center- with its population, talent and business environment, it has everything necessary to become a leader, not only in Asia, but the world.”

Numerous VIPs agreed, stating that the goals would be reached by 2020. According to former U.S. secretary of commerce Carlos Gutierrez, as well as Shanghai Mayor Han Zheng, the city will undoubtedly become a world leader in business, finance, shipping and trade.

“Shanghai has transformed into a modern metropolitan city from one that was traditionally industrial and commerce-based,” said Mayor Zheng. “Looking to the future, we plan to build the city into a market with the capacity to allocate resources to the world.

“In order to do so, we must insist on building a market driven by innovation, and developed strategically.”

Cutting the Asia Fund Investments

In recent financial news, Gottex Fund Management Holdings Ltd., just cut in half its Asia fund investments to improve returns.  While last year, it’s Asia fund had 45 holdings, this year it is expected to have only 22, as reported by Co-Founder Max Gottschalk.

The Switzerland-based company invests $400 million in 38 Asia-focused funds, and the numbers are likely to drop to 30 now.

As Gottschalk explained, "When investors are looking to invest in Asia, they're looking for punchier returns. Funds of funds are earning part of their keeps by providing access to some of the younger, emerging managers or smaller managers."

Gottex isn’t alone in the shift that it’s making.  They are joining companies like Pictet & Cie to shift to have newer, lesser-known managers to boost their returns.  Gottex’s plan at the moment is to change about 20% of the Asia hedge funds it invests in each year, up from 15%.

As Gottschalk explained, "There's a perception that the Asia market, due to its increased risks, should generate higher performance. Also there's no doubt that Asia, and the Chinese economy in particular, are drivers of global growth."

Big Asian Yukon Investments

It looks like Asia has really been putting their money where their mouths are, proving their huge support of Yukon industries.  Indeed, according to a report in CBC News Canada, they have invested more than $1bn in its mineral and gas industries over the last five years.  Ex-Minister of Economic Development Jim Kenyon, spent his time in this position really pushing Chinese companies to make investments in Yukon’s mineral resources.

Intelligent Investments

It has made sense that the investors have poured all this money in.  According to Kenyon, it has been a great way of “securing access to the territory’s resources.”  At least three mining projects and one gas play in the territory have been the recipients of Chinese investments.  Over the last four years, government officials claimed that there had been six deals that had taken place between Asian investors and Yukon-based companies.  As well, as Kenyon said last Thursday in a CBC News interview, “if you’re willing to go that route, then you are going to be very successful in the long run, if you’ve got a good product.”

In total, according to a government official, more than $460m worth of Asian investments has been put into Yukon projects.  But vis-à-vis related spending, that figure automatically increases to more than $1bn.