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What four regions and countries should investors have on their radar?

1. Southeast Asian markets are evolving quickly.

Southeast Asia is becoming a hotspot for private markets, especially venture capital. “We’ve seen a lot of movement of talent from China to Southeast Asia over the past couple of years,” says Jessica Archibald, Managing Director, Top Tier Capital Partners. “We’re now seeing increased maturity in Southeast Asian markets and there are pools of funds we can select from in a way that was only possible in China until recently.”

Many managers have also been quick to learn. “A few years ago, early-stage funds in Southeast Asia were pursuing similar strategies to what we saw in China in around 2010,” says a venture capital fund manager in the region. “They were low conviction spray and pray investors. That changed in the space of just four years and GPs today are much more specialist and targeted.”

Home to a diverse group of economies, Asia is a dynamic and rapidly changing private markets region. As macro issues weigh heavily on some of the world’s more mature markets, here are four regions and countries investors should have on their radar.

2. India is fast becoming the region’s growth engine.

With markedly different GDP growth rates predicted for 2022 (6.8% for India versus just 3.2% for China, according to the IMF), India is fast becoming the go-to market for private capital in Asia. “India has historically been overshadowed by China,” says Kevin Looi, Head of Asia, Private Equity, GIC. “But if you look on the ground now, it is very buoyant. It has a supportive government with pro-investment policies and it is benefiting from the realignment of supply chains.”

“It feels as though I am sitting on an island in India,” says Anand Unnikrishnan, Managing Partner, Fund of Funds, National Investment &Infrastructure Fund. “All around us inflation and interest rate rises are happening and economic growth is falling, but this is far more modest here and there is talk of up to 7.5% growth, not about whether there will be a recession. The government-developed UPIs are changing the way people do business in India and the way money flows. Goods and Services Tax collection, for example, has risen by 40% as the economy is formalising.”

And there’s much more to come. “India has historically operated as many different states,” says Pamela Fung, Executive Director, Morgan Stanley Alternative Investment Partners. “But various government initiatives – such as unified Goods and Services Tax, Unified Payment Interface, and biometric ID programme Aadhaar - have helped to change this. India is now acting as one country.” This has clear benefits for business growth.

India has historically been overshadowed by China, but if you look on the ground now, it is very buoyant.

Kevin Looi, Head of Asia, Private Equity, GIC

3. Australia is set to benefit from turbulence elsewhere.

Australia’s mature market offers control buy-out exposure in a geographic region where this is still unusual. And while it won’t be immune to some of the pressures GPs will face in established US and European markets, it has historically been seen as a strong contender for capital when the going gets tough. “Australia is facing some of the challenges we are seeing elsewhere, such as a return to inflation, rising interest rates, disrupted supply chains and pressures on the supply and cost of labour,” says Anthony Kerwick, Managing Director of Adamantem Capital. “How long this will play out is currently unclear. However, Australian private equity tends to be a beneficiary from a capital inflow perspective during more challenging global conditions because it is positioned within many LP portfolios as a more defensive form of Asian exposure.”

He adds: “We are expecting a lot more LP interest in Australia than we’ve seen over the past five or six years. Many LPs are over-exposed to some parts of Asia for the current cycle and they are starting to redirect some of their capital towards Australia.”

One of the few other buy-out markets in Asia, Korea continues to attract significant LP and GP interest. “Korea is one of the most advanced economies outside of Japan and perhaps China,” says a GP from a large firm. “The companies are globally competitive and they are starting to get there in terms of scale.”

It’s also a market with plenty of experience in dealing with geopolitical challenges. “Korea has long had the ability to adapt and change,” says John Kim, Managing Director and Head of Korea, Carlyle Asia. “It’s in a ‘tough’ neighbourhood and has had to strike the right balance between China and Japan.” The government has actively encouraged the development of its soft power and it has moved up the ranks on intellectual property. “Korean companies’ value-add no longer comes from cheap labour,” says Kim. “It’s from real technology. The country is home to global leaders in advanced manufacturing, biosimilars and healthcare. It also has a strong position in electric vehicles and battery supply chains.”