Asia News Update
China/India: Samsung faces local smartphone developers, their power only growing
Source: Quartz India, 04 August 2014
A start-up smartphone manufacturer, Micromax, has just taken over the Indian mobile phone market, outpacing Samsung. As of Q2 in 2014, Micromax now controls 16.6% of the mobile phone market in India, while Samsung controls 14.4%. Samsung disputes these statistics claiming they are inaccurate. Micromax, however, has made major developments, partnering with Microsoft to build 2 Windows phones and plans to build 1 Android OS phone for the under USD100 market. Analysts say Micromax has done three things right as an emerging business: one, it invested deeply in its brand; two, it built strong distribution networks in urban and rural areas, and; three, it offers a wide variety of handsets that are customizable in language, a key component in India.
Samsung was also outpaced by Chinese phone Xiaomi in both China and India. Xiaomi recently overtook Samsung in the Chinese market and, in India, Xiaomi sold all of its phones in 38 minutes and 50 seconds through ecommerce in the first sale. In the second sale, Xiaomi’s phones sold out in 5 seconds. Analysts note that Samsung faces major challenges from local phone developers who focus on the low (under USD 100) and middle-end (under USD 200) market.
China: Mercedes-Benz Sales Service Co. to cut auto spare parts prices
Source: Global Times, 04 August 2014
Luxury car dealers in China have begun to cut prices for spare parts as a reaction to greater competition and antitrust investigations by China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce. Beginning on September 1, Mercedes-Benz will cut another 15% on top of the already 20% reduction for maintenance costs. Price reduction will include about 15,000 different parts.
FAW-Volkswagen and Jaguar Land Rover both plan to lower prices on their car models in reaction to the investigation by the Chinese government. BMW is said to follow suit soon. The Chinese authorities are attempting to stave off monopolies and increase competition in addition to decreasing consumer costs.
India: Tata Motors to “Zest” up revenue with new sedan
Source: Times of India, 01 August 2014
Tata Motors introduced a new, fuel-efficient sedan for the mass consumption in the Indian market. While the majority of the company’s profit comes from the truck and bus market, Tata aims to diversify and begin to compete with Maruti Suzuki, Hyundai, and Honda. With India’s economy slowing to growth below 5%, the truck and bus industry is suffering. Yet, consumer trends set India to be the world’s 3rd largest car market by 2018. Still, Tata’s domestic car sales fell 39% y/y; its market share fell 4.2% and 10.2% from 2 years ago.
The Zest compact sedan is built on a new platform and includes user-friendly features such as touch screen panels. Analysts see the Zest as a step in the right direction, yet they continue to be skeptical about its incursion into the car market. Tata lacks a product pipeline and consumers are turned off to their products because they are mainly used by taxi drivers and their extreme budget car, the Nano, is perceived as a “poor man’s car.” To remedy this, Tata plans to launch 2 new vehicles each year until 2020, as well as focus on fuel-efficient vehicles.
Korea: Domestic automakers facing competition as import sales grow
Source: Korea JoongAng Daily
Korean customs agency says that exports rose 3.8% from last year to USD11.63bil from April to June. Yet with a strong won and an increase of imports of 58.4% y/y to USD1.93bil has hurt Korean auto manufacturers. Additionally, trade surplus of passenger vehicles decreased 2.8% y/y to USD9.7bil due to growth in imports.
Korean automakers have suffered from factory recalls and labor union requirements. Hyundai recalled approximately 883,000 YF Sonatas from the US and Puerto Rico after problems with transmission-shift cables, thus losing more face in wake of inflating its fuel efficiency claims in 2012. As well, Korea currently struggles with labor union agreements regarding base wage increases, which, in turn, lead to increase in retirement pensions and overtime pay. Ssangyong Motor and GM Korea have come to agreements with unions while Hyundai, Kia, and Renault Samsung have not.
India: China and Switzerland suspected of dumping in India
Source: Chemical-Technologies, 30 July 2014
The Directorate General of Anti-Dumping and Allied Duties (DGAD) of India launched an investigation into reports of dumping the paint chemical Dekitopyrrolo Pyrrole Pigment Red 254 by China and Switzerland. The investigation was spurred by a complaint filed by a domestic producer. DGAD states it has sufficient evidence that both Switzerland and China have committed dumping offenses.
DGAD’s investigation is in to the existence, degree, and effect of any alleged dumping, and to advise on subsequent action against Chinese and Swiss companies as compensation. The agency will use data from January 2013 to December 2013, as well as data from 2010-2012 to evaluate effects on domestic producers. If the investigation finds the companies solely culpable they may be subjected to an anti-dumping duty imposed by the Finance Ministry.
China: BSAF to expand Shanghai R&D Center
Source: Chemical-Technologies, 28 July 2014
BSAF will expand its Shanghai-based Innovation Campus Asia Pacific with a EUR90m investment. The expansion includes adding an R&D building and auxiliary facilities. BSAF expects the new addition to allow them to focus on advanced materials and systems, add new areas like formulations and chemical process and engineering, and connect deeper with the Asian-Pacific scientific community. The campus is claimed to be BSAF’s most important R&D center in the region and with the new additions will become one of the largest centers outside Germany.
BSAF claims that by 2020 25% of its R&D employees will be located in the Shanghai campus. The company’s board identifies the campus as quickly responding to the market and is the leader of BSAF’s other Asian R&D operation centers in Japan, Singapore, and Korea. Additionally the company plans to set up an innovation center in India. BSAF’s R&D spending in 2013 was EUR1.8bn, while in 2012 it was EUR1.7bn.
Vietnam: Investors regret buying Chinese technology
Vietnamnet, 31 July 2014
Vietnam Chemicals Corporation’s subsidiary fertilizer company has failed to make profit since its conception due to poorly manufactured equipment made in China. Losses for the past consecutive three years have been: VND75bil in 2012; VND759bil in 2013, and; VND237bil in the first half of 2014. The total loss so far is VND1.071 trillion. Due to the technology, the plants must purchase 3C coal instead of 4A coal, raising costs VND42bil/y. Combined with loan prices and machine depreciation the price of coal has raised production costs higher than any other domestic plant.
Additionally, two 900 MVA transformers made in China broke down within one week of each other, causing blackouts in eight northern provinces. Both transformers broke right after the warranty expired. Public opinion of Chinese goods has faltered due to repeated failures and poor quality of products. According to the Vietnamese association of engineering enterprises, Chinese were the contractors for 5/6 chemical plants since 2003, 49/62 cement projects, and 16/27 thermal power plant projects. Most have frequent mechanical problems.
Construction & Property Development
China: Housing prices continue to fall
Source: Channel News Asia, 01 August 2014
Independent research firm China Index Academy (CIA) states the average price of housing in July 2014 fell to RMB10,835/sq. meter, a 0.81% decrease. This is the third consecutive month that prices have fallen in China, accelerating from June (0.50% decrease) and May (0.32%). In July, prices decreased in 76 cities and rose in 24, compared to June when prices decreased in 71 and increased in 29. CIA claims that high inventory levels and high debt ratios have influenced developers to cut prices; additionally, CIA states that consumers expect prices to continue to fall.
Property development in China is a key source of economic growth. The Chinese government has worked hard to contain the rise of housing costs while promising to increase the supply of affordable housing. Regulations include restrictions on purchasing 2nd or 3rd homes, higher minimum down payments, and taxing 2nd and non-locally owned homes. However, many local authorities increase revenue through land sales to developers; in turn authorities have sought ways to loosen regulations when property prices fall.
Singapore: Falling housing costs are unlikely to affect the property market long-term
Source: Business Times, 04 August 2014
Currently, liquid assets in Singapore are being held in wait for further price drops in housing. However, with the looming rise in global interest rates, the Singaporean government has been advised to not remove cooling measures. For the time being, land developers will have to grapple with a 10-15% decline in property prices and rising land costs resulting from a reduction of residential land supply by the Government Land Sales program.
Jones Lang LaSalle real estate services notes that the government will step in once property price movement deviates from economic growth by a defined margin. It is expected that the government will remedy the issue once the property price index and GDP move beyond 2% points. Currently, the economy is still generating jobs and the debt-servicing rate will not change.
India: Foreigner buying immovable property illegally
Source: The Economic Times, 31 July 2014
The Finance Ministry reports that foreigners, sometimes on a 182-day tourist visa, have been purchasing immovable property in various parts of India. Under national law, only citizens, People of Indian Origin, and companies with established branch offices in the country are allowed to purchase immovable property. In addition, foreigners have been noted as staying beyond the allotted tourist visa stay.
The Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India), called FEMA, regulates such purchases and has advised landowners to be “extra vigilant” regarding foreigners purchasing such property. The central government has also expressed concern about the illegal stay in the country and will begin to restrict such activity.
Consumer & Retail
Thailand: Post-coup uncertainty hinders economic growth
Source: Wall Street Journal, 28 July 2014
After falling imports and capital goods, the Thai military is looking for ways to build consumer and investor confidence in the country. Y/y, imports fell 14%, raw material imports fell 12.2%, and capital goods fell 4.1%. Pushed by major industrial items and agricultural production, exports grew 3.9%. The Bank of Thailand expects economic growth to reach 1.5% for 2014. This is less than its prediction of 2.7% in March, and down from the 2013 growth rate of 2.9%.
The current military government states that it has taken steps to improve the economy. In June, the Bank of Thailand was ordered to pay USD2.7bil to farmers for rice production and to increase rural spending. The government has approved over 100 projects valuing over USD6.3bil in investment. The government also plans to improve infrastructure, including expanding road and rail networks and building a high-speed rail to increase trade. Restrictions on price increases in diesel and cooking fuel were implemented in the first half of 2014. Economists say a high household debt at 82% of GDP currently hinders consumer spending.
Japan: Rise in sales tax causes drop in output and domestic spending
Source: Salt Lake Tribune, 30 July 2014
The April sales tax hike has caused exports to fall 3.3% in the industrial sector, 3.4% in the transportation sector—including auto, and 9% in the communications sector. The manufacturing sector has cut back production after consumer spending stalled even after an 18% decrease in the yen in 2013. However, Honda and Nissan both experienced a 37% profit jump thanks to high sales in China and the United States, demonstrating profit gains inability to strengthen the economy.
Decline in shipments and rise in inventory demonstrates problems in the manufacturing activity, say Japanese economists. Output is expected to rise 2.5% in July and 1.1% in August. The slow economic growth and low consumer spending has caused economists to question Prime Minister Abe’s decision to raise sales tax again in 2015. The government notes it will reevaluate the decision by the end of 2014.
Korea: Stagnant wages cause consumers calamity during low inflation
Source: The Korea Times, 01 August 2014
Korean consumers report they do not feel the positive effects of low inflation as cost of living is high and wages have not increased since 2012 although more jobs have been created. Consumer prices rose an average of 1.6% in July y/y, less than the central bank’s prediction of 2.5-3.5%. Drop in agricultural prices had the largest effect on inflation, falling 2.2% y/y, while industrial products rose 1.9% and services by 1.7%.
Consumers stated that prices still remain high and many consumers will reduce spending. Analysts say this is due to a faltering growth in the economy, which sits at slightly over 3% from 2013. As the Korean holiday season approaches, prices are expected to rise and consumers will be under greater pressure, potentially leading to a decrease in domestic spending.
Energy, Resources & Environment
Myanmar: Sarlingyi residents demand compensation for land and labor
Source: Eleven Myanmar, 02 August 2014
Farmers and miners are demanding compensation from the Myanmar Yang Tse, a copper mining company. A government report two years ago demanded the company pay for their use of farmland and labor but no reconciliation has been made. 10 villages and numerous employees signed contracts with the mining company.
The local government delayed scheduled protests in the region because of an official visit by the President’s Office Minister. The officer of the mining company claims they were not responsible for paying compensation because they did not seize additional land after licensing.
Mongolia: Foreign investment falls a dramatic 70% in the first half of 2014
Source: Mining.com, 01 August 2014
On July 31, the Mongolian central bank announced that new foreign investment dropped 70% from January—July, totaling USD873.2mil y/y. This follows a 47% drop in 2013. Capital and financial account surplus fell 97% to USD2.6mil, a decrease of USD884.9mil from 2013. Revenue from coal dropped 17% while copper exports rose 144%. Recent major investment by Rio Tinto’s USD6bil copper-gold-silver Oyu Tolgoi mine has caused copper to become the number one export. The Mongolian government controls 34% of the Oyu Tolgoi mine while the rest is controlled by Rio Tinto-backed Turquoise Hill.
The dramatic shift in the Mongolian mining sectors comes on the heels of changes to Mongolia’s 2012 foreign investment laws. The laws are hailed as a positive direction for mining investment and are said to have had little effect on the current market trend. Major investment concerns in Mongolia lie around the future of the Oyu Tolgoi mine, which suffered numerous layoffs in 2012-2013 as well as talks on expanding the mine, which have dragged on since 2009. Additionally, an USD4.5bil debt package by the World Bank, the largest ever proposed for mining, has been put on hold and is set to expire by Sept. 30.
Indonesia/Australia: Waratah Resources makes its first sale of coal cargo
Source: Proactive Investors Australia, 04 August 2014
Australian company Waratah Resources sold 50,000 tonne of Indonesian trial coal cargo to an unnamed coal trading company. The cargo was sent from South Kalimantan, Indonesia to Shanghai, China, strengthening the company’s ties with its Indonesian suppliers. The company sees this as an opportunity to create long-term supply agreements in countries like China, India, Korea, and Taiwan. In addition to the South Kalimantan, Indonesia Project, Waratah holds the Mekambo-Est Iron Ore Project in Gabon and the Okanabora Iron Ore Project in the Republic of Congo, although it has yet to venture in to either of these specific areas.
Waratah uniquely acts as a Commodities Asset Manager while delivering thermal coal. Operation costs are relatively low and potential revenue is high. While the current market value of the company is low there is a likelihood that Watarah will gain more deals; this particular trial sale is likely to set future business transactions through Waratah.
Vietnam: Economists advise banks to close gap between interest and deposit rates
Source: Thanh Nien News, 30 July 2014
Banks experienced high profits and low credit growth in the first half of 2014 causing economists to urge banks to reduce the drastic difference between interest rates and deposit rates. Loans currently sit at 7%/y for agricultural, export and supported businesses and 14% for consumption, says the central bank. Deposit rates are capped at 5-6%/y for 1-6 month terms, and 7.5% for long-term loans. Economists state that a 3-4-percentage point difference between deposit and interest rates is sufficient to make profit and encourage consumption. Economists do not see any government intervention in this issue. Economists expect that banks will eventually cut rates to attract more borrowers. They believe such high rates will freeze funds, and government bonds yield a little over 7%, so investing in consumers is a more viable option for banks.
Banks have reported high profit margins during the first 5 months of 2014. The Bank for Investment and Development of Vietnam reported VND2.5trillion pre-tax profit; Tien Phong Bank reported VND263bil profit, 60% of its year-end target, and; Vietcombank reported VND912bil. Economists report most profits are made from loans, yet credit growth sat at 3.52% during the first 5 months of 2014. Economists recommend banks cut their lending rates between 6-10% y/y.
India: Reserve Bank of India is unlikely to change interest rates
Source: DNA India, 03 August 2014
23% less monsoons have occurred in India this season, causing public fear of higher food costs. Food prices are highly inflated and the lack of water is estimated to continue to contribute to rising costs. The Reserve Bank of India (RBI) believes that a stable rate coupled with recently lowered interest rates will be enough to increase economic growth. As investments pick up they expect a stable policy and the RBI is aiming for this to have a strong effect in the future economy.
The Indian Overseas Bank believes that the current policy will stay but future policies will lessen interest rates. The RBI repo rate will continue to be 8%, the cash reserve ratio will continue at 4% and the statutory liquidity ratio was reduced by 0.5%. Interest rates are expected to stay stable until December if the monsoons steady and early 2015 if they do not.
China: DBS reports a China debt crisis is not so likely
Source: Finance Asia, 03 August 2014
Piyush Gupta, CEO of DBS, spoke on the possibility of a Chinese debt crisis and called it “overdone.” He believes that, while the risks in China are growing, the risks are localized to certain sectors that DBS has not invested in. His comments come at a time when investor fears of bad loans and influential Chinese corporations have been realized by reports of deceitful loans in Qingdao port. DBS holds USD50bil in loans to Chinese companies. USD36bil of those are trade loans and Gupta claims that DBS has not had any major issues. Gupta cites other countries that have large loan-to-GDP ratios that have survived crises and that China has the advantage of being able to service their loans.
DBS will continue to be selective in their acquisitions but they plan to expand deeper in to China, India, and Indonesia, although foreign banks are not able to buy majority shares in Indonesian banks, which DBS sees as a detriment to investment. DBS’s profit for the first half of 2014 was over USD2bil and they expect the growth to continue.
Logistics & Transportation
India: Pipavav Port to double in capacity
Source: Port Technology, 04 August 2014
Pipavav Port will invest USD100mil to increase its container handling capacity 50%. Port operator Maersk Group has secured USD70mil and plans to raise another USD 30mil through internal accumulation. The investment will go into a new yard and upgraded cranes.
The Maersk Group states that the port is currently operating at 85% capacity and plans to expand 8.5 TEUs to 13 TEUs. Similar to other ports, Pipavav is looking in to automated cargo movement.
Australia: Port Botany opens its 3rd container terminal
Source: Port Finance International, 01 August 2014
An USD 1 billion Port Botany expansion project includes an USD30mil investment Sidney International Container Terminals (SICTL), a subsidiary of Hutchison Port Holdings (HPH). The investment will introduce a SICTL container port.
HPH signed a 30-year lease with the New South Wales government for a 45-hectare plot in the port. The new terminal will include the automated stacking Post-Panamax quay cranes, able to span 18 container rows, a technology which the entire Port Botany plans to use.
Thailand: Government plans drastic infrastructure development plans
Source: Wall Street Journal, 29 July 2014
The Thai military government approved an USD75bil infrastructure development plan to increase the country’s transportation capacity from 2014 until 2022. Infrastructure development projects include dual-track railways, extending the elevated trains in Bangkok, increasing the capacity of the airports and seaports. Additionally, the military government will review investing in a high-speed rail that would connect Bangkok with China, Laos, and Singapore but does not believe that it is currently feasible.
The previous government planned to invest USD63bil to replace aging railways and roads but the Constitutional Court deemed it a violation of good practices because it would come in the form of a private loan when the government could allocate the funds from the fiscal budget. Additionally, USD314mil was originally allocated to local villages and governments will be routed to promoting small and medium-sized businesses and government-funded student loans.
Manufacturing & Industrial
Singapore: Manufacturing activity improves in July 2014
Source: Nasdaq, 4 August 2014
Singapore's manufacturing activity grew faster in July in the seventh-straight month of expansion, helped by an increase in new orders as well as greater production output and inventory. The overall manufacturing purchasing managers' index came in at 51.5 in July, compared with 50.5 in June, the Singapore Institute of Purchasing and Materials Management said Monday. The latest number marked an end to two months of slowing growth in the city-state's manufacturing activity.
A PMI reading above 50 indicates expansion, while one below indicates contraction. Singapore's manufacturing activity last contracted in December, when the PMI was at 49.7. Manufacturing in the electronics sector, meanwhile, expanded for the 18th straight month in July at a slightly faster clip. Singapore's electronics PMI rose to 52.4 from 50.7 in June, according to the institute.
India: Cabinet gives the green light to changes in manufacturing law
Source: India Briefing, 5 August 2014
In a landmark decision last month, India’s Union Cabinet approved a proposal to amend three key labor laws including the Factories Act 1948, Apprentices Act 1961 and Labor Laws Act 1988. The proposed changes to the Factories Act 1948 focus on five key points including relaxing norms for women to work in some industry segments at night, improving worker safety, increasing penalties for violations, doubling the provision of overtime from 50 hours a quarter to 100 or from 75 to 125 in other work of public interest, and reducing the number of days an employee must work to be eligible for benefits such as leave with pay from 240 to 90 days. In respect to the Apprentices Act 1961, the proposed reforms are reportedly seeking to expand the scope of employment as ‘apprentices’ on a shop floor. While most apprentices currently have a strong engineering background, this would enable non-engineers to accrue industry-relevant experience and skills.
The proposed amendment to the Labor Laws (exemption from furnishing returns and maintaining registers by certain establishments) Act 1988 would permit small industries with less than 40 workers to file a single-page return for compliance with several labor laws that currently require individual returns to be filed. Many foreign investors are hopeful these proposed amendments may signal the beginning of the first major revamp in nearly five decades of India’s outdated labor laws – a development that could create millions of new jobs and boost the country’s manufacturing competitiveness.
China: Manufacturing growth improves in July
Source: BBC, 31 July 2014
China's factory activity grew at its fastest pace in more than two years in July, indicating that the country's economy may be stabilising. The official purchasing managers index (PMI) rose to 51.7, from 51 in June, the National Bureau of Statistics said. The data comes as China has taken a series of steps in recent months to help boost its economic growth. The official PMI - which measures activity in bigger factories - follows another PMI survey by HSBC last month, which gave a preliminary reading of 52 for July - an 18-month high.
The HSBC survey measures activity in relatively smaller factories in China. The official PMI number is the latest in a series of positive economic data in the world's second-largest economy. Last month, China reported that its economy expanded by 7.5%, in the April-to-June quarter, from a year ago, and up from 7.4% growth in the previous three months.
Pharmaceuticals & Healthcare
Singapore: Number of registered male nurses rises 60%
Source: Channel News Asia, 02 August 2014
The number of male nurses has grown from 2,034 in 2009 to 3,231 in 2013. The rise in the number of nurses comes as positive news for an ageing Singaporean population, which demands an extra 1,400 new nurses every year until 2020. In order to reach this goal male nurses will have to be recruited and the key to that, say analysts, is undermining gender stereotypes in the nursing field.
Luckily, the career path is seen as a viable lifestyle for many individuals. One nurse reports that the culture of “doctors as men, nurses as women” has experienced a shift in recent years. Because of the demanding role of nurses, experts in the field have gone on to play more valued roles like educators and clinicians.
Vietnam: Vietnamese government partners with USAID in HIV relief
Source: Thanh Nien News, 05 August 2014
The United States Agency for International Development (USAID) began a 2-year program with the Vietnamese government to assist in tackling the current HIV crisis in the country. The program will focus on the most at-risk groups, including IV drug users, female sex workers, and men who have sex with men.
The US President’s Emergency Plan for AIDS Relief will fund the program. The program will target 4,000 at-risk individuals while Ho Chi Minh has more than 59,000 people infected with HIV in 1990, many of which are sex workers or men who have sex with men. 49,581 of those people are still living. The plan is aimed at educating community organizations and disseminating information to improve safety.
India: Qualcomm invests undisclosed amount in healthcare
Source: Business Standard 31 July 2014
Qualcomm venture investment group invested in India’s Portea Medical, a geriatric care company. Qualcomm is expected to bring technological innovations that will help Portea in future elderly care, postoperative care, palliative care, and physiotherapy.
Additionally, the investment will focus on chronic disease management. India will experience a major flux of people over 60, rising from 100 million in 2011 to 300 million in 2050, and of those 200 million are likely to suffer from chronic ailments.
Asia: Private equity capital inflows rebound to USD22bil in Q1 of 2014
Source: The Jakarta Post, 31 July 2014
The strong Q1 numbers are encouraging to investors, who are set to bring more capital into the strengthening Asian market. While the number is high, it negates to explain why there was such a drastic increase. Specifically, Q1 experienced a number of very large deals, such as the Tamasek Holdings acquisition of one quarter of AS Watson Group for USD5.7bil in March. The early activity in 2014 signifies a slow shift in the market but an important one: capital is now being recycled, which is the sign of positive growth. IPO exits in China reached USD5.6bil in Q1 and USD3bil so far in Q2. Specifically, the Chinese market includes a major deal by JD.com, valued at USD1.78bil. Japan’s USD1.7tril Government Pension Investment Fund is also beginning to diversify its portfolio through alternative asset classes.
Much of Asia experienced a lull in PE investments during 2011-2013 but signs of recovery are strong and abundant. China’s slowdown in economy was originally a cause of many concerns but the market has turned around at the beginning of 2014 with a growth of above 7%. However, while the market continues to improve, PE firms struggle with matching their unspent capital. Still, the positive news for early 2014 means that PE firms will be able to move through volatile markets and recovering economies slowly.
India: PE firms take new measures to increase returns
Source: Forbes India, 04 August 2014
Indian PE firms have begun working in unique ways that will ensure them greater returns in a market that is slow to recover. A market that is a little over 10 years old, PE firms have invested USD80bil, of which 65% have yet to show returns. This has caused firms to rethink how they will work with their investments and have encouraged a few firms to be more hands-on. PE firms typically look for returns above 25% of the investment, and in India where the market is volatile and the economy is recovering from the 2008 crisis slowly, investors have a difficult task picking out which will make the best returns. While at the beginning of India’s PE history transactions took anywhere between 6-8 months, today transactions on average take anywhere between 12-18 months. PE firms see this as a double-edged sword: longer transactions mean less revenue but more possibility to reorganize an investment in the most beneficial way.
Traditional routes of PE investment cycle have not worked for India. During 2005-2007, investors were attracted by an economic growth rate of 8% but many investments that were assumed to be easy 25-30% gains fell through. After the 2008 financial crisis, India has been slow to recover and has not kept up with its closest economic rivals, China and Brazil. Because of this, Indian PE firms will continue to be flexible and integrated in to their investments to ensure capital returns.
Singapore: State-run GIC continues to make minor investments
Source: Pensions and Investments Online, 04 August 2014
The Singaporean GIC Pte Ltd. continues to make small investments that value USD100mil or less in 2014. GIC keeps its portfolio size a closely guarded secret due to possible attacks on the Singaporean dollar, but estimates of the size are around USD320bil, meaning such small investments signal unusual action by the firm. From 2009-2013, GIC made no such investments. Some analysts believe that GIC may be building positive relationships with companies, leading to future long-term investments. Others believe that GIC recognizes the instability in the Asia’s markets and is playing it safe for the time being until the future of the region is sounder.
Economists recognize the current environment of low-yield bonds; meaning firms must work harder to find a “Shangri-La.” Indeed, Indian investors have run in to similar market problems with a slow recovery in the country. Deep financial integration in the region appears to be unattractive to some, while other firms see countries like China, South Korea, and Malaysia as solid investment territories. The small investments by GIC have raised questions with other PE firms who normally do not bother with opportunities lower than USD200mil.
Technology, Media & Telecommunications
Indonesia: 5 challenges faced by tech investors
Source: Tech In Asia, 31 July 2014
Investing in new technology in Indonesia’s potential economy is attractive yet incredibly challenging due to systemic problems. 5 main points have been identified as barriers to marketing new technology in the island nation. Specifically, Indonesia has difficulties adapting to globalization, as its workforce is underprepared and undereducated for new technology jobs. Many new employees as well as employers feel as if the workforce is underprepared and unconfident when starting a career, especially in technology. In addition to this, start-ups in Indonesia face a wall of bureaucracy and average 47 days and 9 procedures before a company can begin to produce and develop. In comparison, new start-ups have 5 procedures and need about 5 days before a company can begin developing. Indonesia has one of the lowest ratings for ease of new businesses, only beating India and a few other developing countries.
Indonesia also has a difficult consumer audience. Ecommerce makes up about 0.7% of total retail sales in the country. Less than half of the Internet user population spends more than 3 hours on the Internet each day. To that, the number of home Internet users is low because of high costs and poor speeds. In addition to a small number of consistent Internet users, online marketplaces have difficulties shipping products to consumers, whose addresses are often unclear and poor infrastructure means difficult and ineffective transportation. On the other end consumers must make an ATM transfer in order to receive their product. Finally, consumers are often “late adopters” to technology trends, but prefer goods that are popular globally. Analysts note that appealing to the Indonesian market will work best through appealing to cultural norms: “Indonesians are family-oriented, risk averse, and brand loyal” especially if the brands appear local, says McKinsey & Company.
Korea: Samsung reveals a bendable LED television
Source: USA Today, 04 August 2014
In addition to other unique items sold exclusively in Korea, Samsung has announced 78-inch, USD30,000 fully bendable LED TV. The technology that makes it possible is a number of motors located throughout the set. The TV follows a number of other high-quality expensive models Samsung has released in 2013-2014.
The bendable nature of the TV allows each part of the set to be equidistant from the viewer’s eyes meaning a fuller user experience. Samsung has not announced plans to sell the model internationally.
China: Analysts warn investors of Chinese aggression against tech firms
Source: CNBC, 30 July 2014
Analysts are warning investors in all arenas to watch China’s treatment of major technology firms as a possible trend for the future. Investing in China means adhering to government regulations, including openness in technology. Microsoft is the latest to be scrutinized by the government for monopolistic behavior and analysts have begun to worry that this may translate into aggression against foreign enterprises. Investors’ future earnings in China may be affected by the government’s controlling nature.
Additionally, analysts point to infrastructure planning and apparent “carelessness” when building nuclear power plants near metropolitan areas. Such actions, say analysts, demonstrate that the Chinese government will continue to be a harsh critic of foreign companies. However, with the massive and continuously growing potential of the Chinese market investors are still attracted to the world’s 2nd largest economy.