Asean stands to gain from falling PE valuations: report

Sunrise over Shanghai's financial district.
Sunrise over Shanghai's financial district.
OCTOBER 17, 2019 - 6:57 PM

WITH China's private equity (PE) activity likely to remain subdued amid ongoing trade tensions, South-east Asian countries such as Vietnam stand to benefit as valuations fall, according to a report released Oct 17 by law firm Dechert in association with Mergermarket.

The Global Private Equity Outlook 2020 report noted that deal activity for targets in the Asia-Pacific region held up relatively well in 2018, with 608 transactions representing a five-year high for number of deals, and the US$131 billion value being the second-highest figure in the period, despite falling from 2017.

But 2019 has been a different story, with just 320 deals in the first three quarters and US$62.7 billion invested.

"The slowdown in the Chinese economy continues to have a dampening effect on its neighbours, particularly those which heavily rely on trade with China. Coupled with the drop in the level of Chinese investment and acquisition appetite in the region, valuation expectations in parts of Asia Pacific are starting to fall," said Singapore-based Dechert PE partner Boon Siew Kam.

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"For certain funds and their portfolio companies, this could present unique opportunities, particularly if the target company possesses strong fundamentals."

The report surveyed 100 senior-level executives within PE firms with over US$500 million or more in assets under management, including 20 in Asia-Pacific.

Two-fifths of the Asia-Pacific respondents expected the trade conflict between the United States and China to be the factor with the largest impact on the region's deal environment in the next 12 to 18 months. Another quarter cited China's economic slowdown -- itself linked in part to trade tensions -- as the most significant variable.

"Thailand, the Philippines and Vietnam are all beneficiaries of the current situation," said Ms Boon. "There is also a new level of interest in other frontier markets. Southeast Asia seems to be gaining a lot of attention."

Concluded the report: "What were once frontier markets in Southeast Asia are beginning to be seen as true emerging markets, like the BRICS a decade ago. GPs (general partners) with global remits should consider investing in these markets now if they are prepared to face the risks associated with the potential outsized rewards."