Rising Asian VC Investments

investIn the second quarter of 2015 there was a significant increase in venture capital investments in the Asian region. The total was over half of America’s level ($19.2bn), coming in at $10.5bn. It has been suggested that this large number was due in part to a slew of deals that have been aimed at developing digital champions in parts of Asia.

As well, according to a study put out by CB Insights for KPMG, this boost is said to have been “the most prominent feature of a global surge in start-up investing this year.”

The flipside of this surge is how it makes Europe look. Even though that region has been encountering a slight development, it’s not nearly on the same par as what has been transpiring in Asia. And this of course has an impact on the global economy.

As well, while looking at Asia as a whole might be extremely positive, in July, China’s factory industry “appeared to be contracting at the fastest pace in 15 months.” Indeed, there was a plummet of Asian stocks possibly as a result of pessimistic data from China at the end of last month. The Shanghai composite index went down to 8.47%, marking its worst performance in three weeks.

So despite the increase in Asian VC investments, the region is not completely out of the woods yet.

Invest Asia: India Versus Japan

indiaWhen it comes to investing in Asia, where is the best market? In a recent study, India came out on top for FDIs, out of 110 countries worldwide. America only reached position number 50 and China – traditionally the place to invest in Asia – came in at a poor 65.

The study was the result on a Baseline Profitability Index (BPI), created by Daniel Altman who reported that in 2015:

“India coming out on top, with growth forecasts up, perceptions of corruption down, and investors better protected following the election of a government led by Prime Minister Narendra Modi.”

The BPI is based on: the following levels: the value an asset grows, how that value is preserved while the asset is owned, how easy it is to perpetrate of proceeds from the sale of the assets.

Japan is also not such a place to be sniffed at, when it comes to foreign investment opportunities. In the first quarter of 2015 its GDP increased by an annualized 3.9%, which was its highest it had been since the same quarter back in 2014. While that growth is mainly connected to inside investments, it should still be a factor for potential FDIs. Indeed, profits are increasing and yen is weakening. Japan-based firms like Panasonic and Toyota Motor are taking advantage of this, substantially boosting their global investments.

Ultimately it depends on very much on timing, and corporation. For those looking into Asia investments, it is crucial to investigate how other companies in those industries have fared in each destination.

 

Indonesia: Fighting for More FDI

taxIn an effort to expand FDI in the region, Indonesia will increase its tax holiday from 10 years to a maximum of 15 years for investments that fall into one of three categories: those of IDR 1 trillion (US$76 million) plus; labor-intensive investments, and investments that are made into the economically-poorer region of eastern Indonesia. It will also be applied to those categories viewed as “pioneer” like: base metals, communications equipment industry, machinery, oil refinery, and renewable energy.

Interestingly at the end of the first quarter of 2015, there was a notable increase in investment in Indonesia. It hit a record since when Joko Widodo was elected President, indicative of how he is succeeding in “revitalizing Southeast Asia’s biggest economy.” Indeed, figures showed that total investment went up 16.9 percent, resulting in a quarterly record of 124.6 trillion rupiah ($9.6 billion) during that time frame.

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.

Norway Investing into Asia

Asian-homesThe Government Pension Fund Global, a Norwegian-based fund, is about to make a very substantial investment into Asian real estate for the first time. The specific amount has not been disclosed but it has been described by the head of real estate investments at the fund, Karsten Kallevig, as “a lot.”

The fund has already purchased properties in other international major cities including: Berlin, London, New York and Paris. In 2014 it held approximately $18 billion (2.2 percent of its assets) in real estate. It is seeking to grow this figure to 5 percent. This real estate investment is likely to be in “the better parts [of] Singapore and Tokyo.”

It is mainly going to be building office properties as that is what is on sale (rather than shopping malls). The fund has built its money-based from Norway’s oil revenue which now amounts to $870 billion. Tokyo and Singapore currently seem to be the preferred areas of choice to invest in Asia.

Asia Fund

currencyBaring Private Equity Asia recently announced it had raised $3.99 billion for its sixth Asia fund. This is the second largest private equity funding that has ever been ascertained for Asia and is the mark of movement by investors to seek out opportunities in the region. It is also 60 percent larger than what was raised in the previous fund, exceeding its $3.3 billion target.

In 2014 the Carlyle Group raised $3.9 billion for its fourth Asia fund. But in 2013, KKR & Co. raised $6 billion.

The Baring Private Equity fund will target companies in Asia, and those around Europe and North America focused on enhancing their presence in Asia.

Reasons to Invest in China

ChinaPotential Asia investors might want to look into China right now. The first reason is because of the proposal put forward by the Commerce Ministry that would consolidate foreign investment in China while reducing restrictions and start adjusting the variable interest entitles often used to sidestep foreign-ownership limits.

According to Hong Kong-based Partner at Davis Polk & Wardwell, Anthony Dapiran, if this becomes law it will “push China so much closer to being a ‘normal’ place to do business.” This is partly because the region will no longer have conflicting layers of regulations and bureaucracy will be facilitated as local and central government approvals for most investments will be eliminated.

This could be part of the reason that foreign companies are investing in the region. For example, L Capital Asia just announced its second substantial investment in China. This marks its first investment in an outlet mall throughout the world. The company will be putting in $100m+ in Sasseur Cayman Holding Ltd. – the company that began as a coffee shop but has now developed into four outlet malls, featuring brands that sell excess stock at bargain prices.

So if the trend continues, then China will be becoming an increasingly more attractive region for foreign investors.

Malaysia Investment News

by Khalzuri Yazid
by Khalzuri Yazid

Lhoist is making a substantial investment in Malaysia. The Belgium-based lime-producing firm that boasts a yearly turnover of two billion Euros is planning on building the largest lime plant Asia has ever seen in Tapah, Perak. In addition, it will construct a research and support center with a Kuala Lumpur regional office. It will be putting 170 million Euros into the first phase of this expansion.

It seems Malaysia might be becoming a hotbed of investments. According to the Multimedia Development Corporation BhD (MDeC), in 2015, the region could expect “an influx of investments in information and communication technology (ICT).” This could be explained in part by the funding of private sector training, R&D, sustained infrastructure expansion etc. Further, as Ng Wan Peng, COO of MDeC pointed out, even though in 2014 Malaysia encountered economic challenges, its productivity did not slow. Further, the digital industry really advanced with a contribution of RM160.8 billion to the 2013 GDP.

Further, over the next five years Brooke Renewables will be investing $1 billion in Malaysia in order to construct a second-generation bio-ethanol and bio-chemical plant. This will be the first commercial facility to exist in Southeast Asia that will produce second-generation biofuel made from inedible crops.

So Malaysia is fast becoming the Asian address for investments.

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.

Consumer Companies Invest in Indonesia

indonesiaIndonesia has become quite the hub for consumer firms. As the region becomes increasingly middle class (closet to 250m of its residents are in that category), the high-tech buzz around Indonesia seems to have caught on to a whole slew of e-commerce startups.

One such company that clearly finds Indonesia an attractive region is SoftBank and thus it recently invested $100m in Tokopedia – the online venue for Indonesian citizens and companies to open and maintain their online stores for free.

So apart from the increase in the middle class population in Indonesia, what is making the region so attractive to foreign investors? A change in the law could be one factor. Until April 2014, many businesses were closed to foreign investments, with others posting incredibly high restrictions. Since then however, the Negative Investment List came into effect, changing this. Perhaps this was why the country’s GDP expanded by 5.12 percent between April and June. And with this change, businesses saw a change in attitude from the region’s government that has since then been seeking to develop a far more open economy.

Added to that factor is the Asean Economic Community that is due to come into play at the end of next year.

First Asia Capital analyst David Nathanael Sutyanto, recently said that due to the sharp increase in subsidized oil fuel price, there has been a review of Indonesia’s fundamentals. While eventually this will result in an improvement of Indonesian economic fundamentals, there still needs to be government anticipation of the potential short-term negative impacts.