There are many reasons why Australia celebrated 53 medals at the Paris 2024 Olympics – 18 of them gold. Our swimmers dominated, as they do. Our athletes and cyclists stood strong on podiums, too. We didn’t send anyone for fencing, handball or volleyball.
What does this have to do with investments across the Asia Pacific region? As deeply as Aussies love a good ‘fluke’, intense amounts of training, effort and hard work are behind those wins – and funding. We know where our medal chances lie, and we invest in them.
Nicholas Moore AO’s report for the government, ‘Invested: Australia’s Southeast Asia Economic Strategy to 2040’, is a blueprint for the extraordinary opportunities – our strengths, our investment medal chances - in our neighbourhood. The challenge we face is moving on the advice it contains – and making similar bold moves elsewhere in our region, including Japan and Korea.
As a firm, we are right behind that initiative – both via our presence in the region, and through strong relationships with local firms. To understand and leverage opportunities, investors and dealmakers need to understand local markets – from regulatory settings and competitive dynamics to the possible impacts of policy decisions.
No, it’s not a great time for deals generally. M&A deals globally fell almost 25 per cent to US$2.7 trillion in 2023 according to Bloomberg - the lowest point in a decade. The Asia Pacific region was not immune. Recent data indicates a 17 per cent drop in deal volumes and a 32 per cent decline in deal values compared to the previous year across the region.
It isn’t all doom. There are opportunities and Australian businesses are poised to benefit – the key lies in understanding the unique regulatory and cultural landscapes of each Asian nation. It’s understandable to see it as a landscape of difficulties and risks, especially given the era of protectionism and industrial policy we now find ourselves in. About 70 per cent of new industrial policy interventions last year were trade-distortive, a threefold increase from pre-pandemic levels.
Despite the overarching trend, pockets of robust economic activity persist in Asia – especially in tech. The $9.1 billion acquisition of Australian software company Altium by Japanese semiconductor provider Renesas Electronics is this year’s biggest deal so far, smashing Australia’s record for M&A in the pure software world. Two years earlier, Block saw great fintech opportunities in Australia, ultimately settling on Afterpay in the largest Australian M&A deal ever.
We’re in a dynamic region, with a mix of emerging and mature economies offering opportunities in areas like energy transition, digital infrastructure, technology, agriculture and healthcare. The changing demographics and growing middle-class wealth across the region feed into these growth areas.
Case studies from the region illustrate how these challenges can be turned into opportunities. For example, Japan's reforms favouring private equity investments have led to a 30 per cent increase in announced M&A deals in 2023, bucking the wider trend. The depreciating yen and low-interest rates have created a favourable environment for investment, with the Japanese government's initiatives to encourage unsolicited bids further stimulating activity. This proactive stance has positioned Japan both as a potential merger partner and as an attractive destination for Australian investors seeking value in a mature market. Japan took silver as Australia’s second-largest trading partner and export destination last year.
Similarly, the Philippines established its inaugural sovereign wealth fund along with foreign-investment-friendly legislation. Indonesia's resurgence of deal activities, with the involvement of its sovereign wealth fund INA (Indonesia Investment Authority), signals attractive asset packages ripe for investment.
Meanwhile, demand for data centres is surging, with Malaysia emerging as a powerhouse and attracting billions of dollars in investments. And Singapore, the region’s dealmaking hub, is showing more enthusiasm towards foreign investment than it has in recent years.
But as with our elite athletes, performance does not exist in a silo. Opportunities cannot rely on the boldness of business alone. The federal government also has a role to play. It can enhance bilateral trade agreements to include provisions that simplify the M&A process and protect Australian investments abroad, offer incentives for Australian companies and encourage Australian superannuation funds and institutional investors to consider opportunities in the Asia-Pacific.
The landmark Green Economy Agreement between Singapore and Australia inked in 2022 is a leading example of this. As is Australia’s membership in the 14-strong Regional Comprehensive Economic Partnership, with its promise of better access to the fast-growing Indo-Pacific region. Capturing over US$25 trillion of trade, it’s the world’s largest free trade pact, underlying the importance of cooperation across the region.
More recently, in March this year the federal government announced its $2 billion Southeast Asia investment financing facility – a direct response to one of the Moore Report recommendations. Other initiatives include ‘landing pads’ to help Australian businesses expand into new markets (networking and venture capital access is part of the mix) – one is in Singapore, two more are on the way in Jakarta and Ho Chi Minh City.
Despite our arguable conservatism and a few missteps through the history of outbound investment into our surrounding region, Australian companies have a track record of successful investments. For example, Cochlear’s presence in Singapore and Malaysia and SunRice developing operations in places such as Singapore and Vietnam. After Australia, the top sourcing locations for Wesfarmers in 2023 were Bangladesh, China, India and the Republic of Korea. This year Orica celebrated 55 years of mining services in the Philippines – just one of its 15 locations across APAC and Asia.
It is exciting to see continued growth in the number of smaller and medium enterprises venturing into the region. And of course, many of our digital and technology companies – including the current and former WAAAX stocks on ASX – have a material presence in Asia.
As we look towards the future, it’s evident that the Asia-Pacific market offers a mosaic of diverse investment opportunities.
That future favours the informed, the agile and the strategic – qualities that Australian investors have in spades. With the government's support the nation's businesses are better positioned to navigate the complexities of international M&A, turning potential obstacles into steps towards podium-level success.
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