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.
In 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.
There 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.
The 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.
Baring 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.
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.
There is much potential these days for the Philippines as a hotspot of Asia investments. It took a while, but since 2004, the region has been back to its pre-1980s status with GDP averaging 5 percent. A year ago, there was a 7.2 percent growth in the country, marking the highest out of the Association of Southeast Asian Nations economies.
The Philippines does need to sort out some economic issues. For example, its high unemployment rate (standing at 16.5 percent for youth) is most concerning. More quality jobs need to be available to prevent the 10 percent of Philippine workers seeking employment in other countries.
There has been an increase in macroeconomic stability in the region due to Bangko Sentral independence and inflation is now controllable due to lower fiscal deficits and public debt. As well, its economy increased 6.4% on year in the second quarter of 2014, rendering it one of Asia’s fastest-growing countries. Over the last four years, the government that has been in power has increased infrastructure public spending. The 10 percent of residents who send money back home are maintaining the strength of the local economy. In addition, there was an increase of 5.3 percent consumption. Elevated exports are also assisting in growth. But there was a drop in public construction spending.
At the end of the day, the Philippines has a lot going for it economically. But for it to really thrive in the long-term, some serious work needs to be done on its capacity to create real jobs at home.
For the last two-and-a-half decades, the Ontario Teachers’ Pension Plan has been making investments in Asia. Currently, the figure stands at approximately C$12.5 billion. Now, it is set to give more, allocating the funds to private investments. Ron Mock, CEO of OTTP, believes Asia investments are “a critically important part of our portfolio growth in the future. We’re Asian optimists. We see this region as a place that we absolutely have to be involved in. The private area is in a growth mode for us.
But before making the investments in Asia, it is important to proceed with caution. According to Market Realist, Asia is often viewed as “a land of opportunity.” The region features emerging and developing markets which translates into “a lot of hope and promise for investors.” Foreign investors are finding ETFs attractive, in particular the Vanguard Pacific (VPL). There is also the iShares MSCI All Country Asia ex-Japan Index ETF (AAXJ) as a great measuring tool. These are all helpful for those looking into investing in Asia.
Another potential issue for Asia investors is that not every market in the region is in the developing mode. One need just look at Japan as an example. In terms of China, while its economy has been doing well over the last few years, there are some issues attached to its equity markets that have not been performing all that well. So that needs to be considered as well.
When it comes to investments, this news indicates that Asia need not be seen as an entity. Split it up and look more specifically at Singapore, Hong Kong, etc.
Dubai Investments (DI) International is considering expanding into Africa and Asia. It is looking to do this through partnerships across the regions as well as possibly participating in commercial projects throughout the Middle Eastern region. This is in the midst of DI International’s negotiations with potential partners in Libya and Iraq to develop a business park like the Dubai Investments Park (DIP) that already exists.
According to the company’s CEO and Managing Director, Khalid Bin Kalban, establishing the firm was just the “first step” in expansion into the global market. The next step is negotiating with potential entrepreneurial companies throughout a wide range of sectors to “consolidate [its position as an important international player.” This is in conjunction with replicating the successful DIP model.
Within the last five years, exports from DI have escalated more than 129 percent. Thus now the time is ripe for moving forward – globally.
Asia Investments: Pros and Cons
According to Sharat Shroff of Matthews Asia, there are obstacles investors have encountered vis-à-vis Asia investment opportunities. These include: the large Korean conglomerate domination of the market, the very specific – and thus elite – business landscape, etc. In other words, Asia needs to begin expanding its industry diversity. Shroff maintains that this IS happening, but slowly, although the trend is likely to continue. Right now, Thailand is a good place to start given that the Thailand Bangkok SET index doubled from October 2011 to May 2013.
For those looking into S.E Asia, the private equity market is good. 2013 saw its highest level in five years, reaching $2.19bn. In addition, according to Towry head of investment Andrew Wilson, the fact that the sterling is currently so strong means that investors can purchase inexpensive assets in the region at better prices. Still, it should be noted that there are risks within this region, so all factors need to be properly considered.