Investing in China: The Asian Biotech Hub

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pharmaceuticalChina is about to get a biotech center.  With an investment of $350 million from Pfizer Inc., this facility – that will be located in eastern Hangzhou and will be ready by 2018 – is in line with other similar ones engineered by large pharmaceutical corporations to develop a presence in the second largest drugs market in the world.

According to IMS Health, the healthcare market in China is estimated to be valued at $185 billion by 2018. For FDIs to get the edge in the market, getting a head start on government and domestic regulations is very advisable.  And with this new facility it will help China’s goal of adding to the value of its manufacturing sector.

There has been a significant plummet since 2012 in drug market growth from 20+ percent.  This is due to the lack of demand for branded generics as well as Beijing’s attempt to push prices down to stop costs getting out of control.  Despite this, the projected spending for overall healthcare in the region by 2020 is $1.3 trillion.

In Singapore, ASLAN Pharmaceuticals is in the process of developing the pan-HER inhibitor varlitinib.  The US Food and Drug Administration Office of Orphan Products Development for gastric cancer just gave it orphan drug designation.  Given that gastric cancer is the third leading cause of cancer deaths around the world and the third most common cancer in Asia, this is an important step in disease control in the region.

Investing in Asia: Points to Consider

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jobsFor those considering making an investment in Asia, there are many different options.  According to Nitin Bajaj, portfolio manager of the Fidelity Asian Values Investment Trust, “There are over 17,000 investible companies across Asia – which is a lot of companies to research.”  Therefore, when it comes to making an investment choice, he says that “what matters to me for generating long term returns is to buy good businesses, run by capable and trustworthy managers at reasonable prices, when they may have short term cyclical or internal issues.” He adds that he “often look[s] for companies which will be able to thrive in what today may seem like very unfashionable sectors. For instance, child care centres or manufacturing of plastic toys or producing packaging tubes for toothpastes may not seem particularly appealing. But it is in sectors like these that I have found companies that have built deep competitive advantages, are run by able managements, generate a lot of cash and are available at attractive prices.”

Then there is the perspective of potential Asian FDI investors worrying too much about the climate there.  According to UBS Wealth Management’s Asia-Pacific investment office’s leader Min Lan Tan, “Asian credits are showing few signs of stress, with spreads at 320 basis points versus the height of over 800 basis points during 2008 and 2009.”  Nonetheless, right now Asian equity markets are pretty much stagnant and valuations are getting to crisis levels.  It is probable that earnings forecasts will lessen, but even with this, there is prosperity in the mid-single digits along with robust ROE (Return on Equity) ratios.  In addition, it is likely that quality income stocks will encounter an improved performance this year, within an environment of a reduced pace of Fed rate hikes and renewed regional central bank focus on policy easing.

If Sir Richard Branson is to be heeded, then the current environment is ripe for investing in Asia.  His Virgin Active gym chain is putting £150m ($217.85m) into South East Asia, with the opening of around 30 gyms in the region.  Virgin Active’s CEO, Matthew Bucknall, explained:

“The success of our first four clubs in Thailand and Singapore has exceeded our expectations and the time is right to accelerate our expansion plans. The global health and fitness industry is evolving rapidly, with many of the current Asia health club offerings being outdated first-generation, fitness-only formats. Along with opening more of our large premium clubs, we are also looking at new formats.”

As well as this move being beneficial to Virgin, South East Asia’s economy will encounter a hike as with Virgin’s expansions around 2,000 jobs will be created within the next six years.

Asia’s Robot Revolution

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robotRobots in Asia are becoming increasingly prevalent.  China and Japan seem to be the leaders in the robotic revolution, but the whole of Asia is being subject to these machinery assistant that are now to be seen in hospitals, retail stores, warehouses and more. Patent lawyers can attest to the substantial increase in filings for robotics technology, so much so that patent research firm IFI Claims have stated there has been a tripling of annual filings over the last 10 years.

Even though America leads the way vis-à-vis robotic software, China is ahead of the game in hardware manufacturing expertise.  It seems that robotics have become the country’s “national priority” and thus the race begins between east and west for which country will come out trumps in this new industry.

Just recently in Beijing, Americans and Europeans joined the Chinese in its Global Mobile Internet Conference.  It was predicted by the International Federation of Robotics that China will be subject to the most industrial robots working in factories by next year than any other country.  This is good for Asia as a whole, but it will be taking the place of Japan.  At an estimated $9.5 billion, China’s robot market is one of the largest in the world.

And that is just the beginning.  By 2020, China said if all goes according to plan, its production of industrial robots will be tripled, increasing production of approximately 33,000 annual units to 100,000.

It seems like a great place to make an investment.  Indeed, according to CB Insights, in 2015, VC investments more than doubled to a staggering $587 million. This includes private equity investors who want to build robot investment portfolios, and new incubators like Playground. Another reason it’s becoming an increasingly popular investment option is the price drop: over the last four years, there has been an average 14% price drop for industrial robots, all this while their capacities are increasing.

 

Who is Investing in Asia Today?

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energyRussia used to be one of the big Asia FDI’s.  Over the last few years or so however, this has been changing. Various factors have contributed to the depletion of Russian finances entering into Asia.  One recent reason given was put forward by Kyrgyzstan President Almazbek Atambayev who at the end of last year pulled out of a Russian-Asian deal to construct two major hydropower facilities.  He explained as follows: “In the current situation, when the economy of Russia is not on the rise, let’s just say, and the trend for oil prices is only going downward, we see that these agreements… well, for objective reasons they cannot be fulfilled by the Russian side.”

This is not the only deal cancellation that has taken place in recent times.  It seems that there have been many disruptions to investments caused by Western sanctions against Russia.  One example was when work was suspended on the Caspian Sea’s Tsentralnoye offshore field since some of the technology needed for drilling was banned from sale to Russian companies.  One reason given was articulated by CEO of LUKoil, Vagit Alekperov who explained: “We cannot get the drilling equipment because it belongs to non-Russian companies. To build another drill rig just for one well would be illogical, so we and Gazprom have taken a pause, and we will wait until either other rigs free up, or sanctions are lifted.”

And then there was the highly publicized Russian withdrawal from Turkmenistan’s energy market in Central Asia. The highest-profile Russian retreat from Central Asia’s energy market is in Turkmenistan; that, in comparison to the celebrations marking the 2007 historic agreement between the two regions of the pipeline built that linked the two.

But it’s not all bleak for Asia.  In a more recent article in The Telegraph, it was explained how lucrative making an investment in Asian income funds can be for investors.  It comes with little risk and lots of growth opportunities.  As Jupiter’s Asian Income Fund Manager Jason Pidcock says: “They [these funds] offer diversity of income source and currency exposure and will aim to capture an exciting growth story in the medium to long term.”

And that’s before we even look at the technological investment opportunities Asia has to offer.  This can be seen via the $38million Tech in Asia Fund, which seeks to “serve the tech and startup ecosystem in Asia,” which it has been doing by “uncovering promising startups, reporting about news in the tech scene, and connecting people at our events.”

Yes, there have been some FDI withdrawal in Asia, but one only needs to look at McDonalds to see that Asia is still a powerhouse.  While there are currently over 2,800 McDonalds’ spanning China, South Korea and Hong Kong, that is just the start as the restaurant chain announced an additional 1,500 new eateries to make their presence in the region over the next five years.  Why?  CEO and President of McDonald’s, Steve Easterbrook said it was because: “Asia represents a significant area of opportunity for McDonald’s to blend our global quality standards with local insights and expertise from partners who share our vision and values.”

 

Video Games and SE Asia

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video-gamesIt seems that when it comes to video games, South East Asia is where it’s happening. And it’s set to continue happening there too. Predictions for the next few years, garnered from Newzoo research firm, show that game revenues are set to grow by 50 percent per annum and by 2018 reach $485 million. Much of this is being facilitated by the new 4G mobile spectrum.

Even in 2015 there was an expansion of 86 percent. This is substantially higher than China, Japan and South Korea. The main place it’s happening is Thailand, which is, according to CEO and co-founder of Playlab, Jakob Lykkegaard, “becoming a key market for mobile games and studios.”

This could be partly in due to the fact that research has shown Thais to be spending an average of 5.7 hours per day on their smartphones.

It could also be the case that Indonesia will follow suit and soon after because the Number one South East Asian region for gaming due to factors like continually expanding middle class, increase in mobile web penetration and its already considerable population.

Furthermore, a recent announcement will very soon make it possible for Indonesia to have a strategic plan that will shape its entire digital game industry in an effort to give local developers more of a controlling share of the market. An action plan is being developed to facilitate the country’s goal of having local players in the gaming industry control at least half of the market by 2020. Currently, they only have control of 20 percent of the $321 million generated by the gaming industry and there is a threat that the figure will further plummet to 3 percent in the next three years if the government does not collaborate with local industry stakeholders.

South Asia’s Strength

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koreaIndia is seeking to utilize the economic and geographic features of the South East region to enhance its inhabitants’ quality of life. This demographic is one of the most highly populated in the world. As such, according to Sumitra Mahajan (Speaker of the Lok Sabha), it has tremendous growth potential. Yet at the same time, she understands it has to deal with “challenges in realizing our goals.” In addition, big picture goals of sustainable development are very much connected to matters of “regional connectivity and regional cooperation.” Since Parliaments are representative bodies, they too have to take a principal position in the implementation of sustainable development targets.

This sentiment was echoed by Mohammad Ishaq Dar, Minister Senator. He said that South Asia and Pakistan’s future path for economic expansion will require the deep involvement of “all the SAARC states.” The connectivity gap (involving transportation and infrastructure matters) will have to be greatly reduced. Plus, with the operation of the China-Pakistan Economic Corridor (CPEC), the entire South Region will benefit, due to the connection that will be made to Europe, the central Asian states, and beyond. Other noteworthy initiatives for this development include: the Turkmenistan-Afghanistan-Pakistan-India gas pipeline project, the CPEC, the CASA-1000 (Central Asia South Asia Electricity Transmission and Trade Project) and AIIB (Asian Infrastructure Investment Bank).

Thanks to the efforts of the Pakistan Muslim League (Nawaz) Government, the budget deficit dropped from 8.8 percent to 4.3 percent, engineering a 33 percent hike in tax growth within two years. It also stimulated foreign exchange reserves up to $21 billion, while the tax to GDP ratio escalated to 11 percent (a jump of 2. 5 percent) when the government began in office.

Collaboration between the national parliaments is crucial for advancing a poverty-free South Asia in pursuance of achieving the Sustainable Development Goals (SDGs), Speakers of South Asian countries said yesterday at a summit in the city.

Ultimately if South Asia is to thrive, experts seem to agree on one thing: the importance of “regional cooperation,” which was also a sentiment repeated by speaker of the Bhutan national assembly Tshogdu, Jigme Zangpo. He added that: “We need to redefine and rejuvenate our cooperation for a happy South Asia with 1.7 billion people.”

China’s Economic Growth

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railwaysThroughout 2015, China encountered a deceleration in its economic growth. However, even with this, it still boosted its investment in railways last year. $126 billion was spent on rail projects throughout 2015, resulting in 9,000 kilometers of new track into operation. Thus today, there are 19,000 kilometers of high speed rail in China. According to the China Railways Corporation these figures matched the annual targets.

So while fixed asset investment accelerated 10.2% year over year (down from 13.9% at the beginning of the year), railway construction projects – in comparison – really encountered a significant expansion. It is hoped that this year, China’s GDP will grow 6.5 percent, down from the 6.9% figure of 2015’s last quarter.

In an effort to enhance the growth of the nation, it has been suggested that focus should move away from the “export-led model” and toward “more sustainable, domestic consumption-led growth.” According to head of China/Hong Kong Strategy for Hong Kong-based brokerage CLSA, Francis Cheung, “China will go from a high growth rate to slower or more sustainable growth rate. It at least will take two to three years for the economy to be on the stable growth path. Unfortunately, that’s not good for the market. There will still be a volatile market in 2016.”

Power in Asia

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singaporeIt has long been known that Asia is a real powerhouse. In addition, it is home to seven out of the top 10 fastest growing economies. In addition, in a recent ranking undertaken by Business Insider, 15 out of the 50 most powerful people in the world were Asian-based. The ranking went according to: economic power, newsworthiness, impact etc., and how much recognition they have in their industries.

Furthermore, women are thriving in Asia. At Singtel for example – the huge telecom company in the region – a third of senior management roles are held by women. This includes: Group CEO and head of Investment, Operations and Technology.   In Singapore the success of women in the workplace is especially existent. Over the past ten years, according to the World Economic Forum, there has been an escalation of 15% of women in the workforce. As well, women comprise 15% of CEOs in Singapore (which is the highest in Asia, and the third highest in the world). Although, that does mean that 85% of CEOs are men…

In Japan it seems that companies are trying to gear up to women’s rights and gender equality in the workplace.   Just recently the country’s Ministry of Trade and Industry – together with the Tokyo Stock Exchange – chose Nissan as the “Nadeshiko Brand firm,” the company that “promotes the use of the female workforce.” The nadeshiko is a pink flower (carnation) that grows in Japan and is often associated with the beauty and grace of Japanese women.

However before we get too excited about Japan, we might want to remember that “its GDP just contracted for the second quarter in a row, which, yes is the rule of thumb we use to define a recession.” But that’s not the only way we measure a region’s success. When it comes to technology, according to Michael Sekora, an ex-top U.S. Defense Agency executive, “What matters ultimately is technology. Japan has continued to perform superlatively on that measure. America’s performance has been disastrous.”

Putting Indonesia on the Map

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IndonesiaIndonesia has not traditionally been the go-to place for US investments. It’s rather usually been places like China Americans have flocked to when seeking a place in Asia in which to put their money. Indeed, as was well put by Sham Gad, in an article in Investopedia, entitled, ‘Investing in China,’ US investors into the region get “the advantage of a U.S.-regulated, GAAP-adhering public company along with the profit growth potential coming from China.”

Now though Indonesia might be coming into its own. Easing more investment regulations as in its most recent business announcement, this will boost the rupiah and have the potential to encourage somewhat recalcitrant investors to put their money into the region.

One of these procedures would actually let foreign investors “park their profits onshore” which could assist in boosting a currency that has dropped nearly 19 percent against the dollar this year. This could lead to investors getting returns of anywhere between one and two percent points higher than what they have in Singaporian banks, which is certainly a much more attractive option.

The fact that Obama visited Indonesia twice in his first term also can’t hurt the situation. As Senior VP for Asia at the US Chamber of Commerce, Tami Overby recently said, there will be more regional competition for foreign investment when the Trans-Pacific Partnership trade deal is ratified and takes effect, most likely within the next two years.

Investing in Asia: Why Now?

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At the 2015 Asia Summit, Technology and Innovation, investors discuss what philosophies and technologies they are using to make the smartest investment decisions. Which top investors are financing these efforts and why? How is social media impacting these decisions? All this and more is discussed at the Summit.