This Fund Thinks Southeast Asia Looks Ripe For Investment, And Here’s Why

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S&P Global Market Intelligence predicts that Asia Pacific The region will dominate the world’s growth in the coming year, generating positive real GDP while the US and Europe are likely to slow down. With that dominance comes a wide range of investment opportunities in the major Asia-Pacific markets.

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Asia-Pacific region to lead global growth in 2023According to S&P Global, the Asia-Pacific region Will see real GDP growth of around 3.5% in 2023. The region produces 35% of the world’s GDP, supported by free trade agreements, supply chain efficiency and competitive costs in the region. S&P Global expects the Asia-Pacific region to play a key role in preventing recessions around the world and economic slowdown in developed markets such as the US and Europe.

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A slowdown in the US could be good for the investment climate in the Asia-Pacific region. financial Times Noted that the US recessions that began in 1990 and 2007, followed by periods of risk aversion, triggered significant capital inflows into emerging markets, as we have seen recently.

For example, international capital markets supplied about 1% of the GDP of emerging markets after nearly a decade of money withdrawals. By 2010, those inflows had risen to 2% of GDP.

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As the Asia-Pacific region gears up for growth in the coming years, some asset managers are already in a position to take advantage of opportunities ripening in certain markets.

opportunities in emerging markets

In a recent interview, David Yong, CEO of Evergreen Group Holdings, which manages Evergreen Fund, explained how recent and current events have affected established opportunity in the Asia-Pacific region. He said emerging markets outperformed developed markets before the COVID-19 pandemic and recent geopolitical tensions.

Additionally, Yong sees the potential for even higher long-term returns due to the rapid growth rate in the region. He highlighted the opportunities for diversification offered by emerging markets, although with excellent opportunities comes risk.

“With the current volatility in the macroeconomic environment, risks to financial stability include inflation, deterioration in the economic outlook, high borrowing costs, and volatility in commodity markets,” Yong explained. “Nevertheless, investors continue to diversify into these emerging markets, believing they are more resilient to external vulnerabilities. Having said that, the risk-to-reward ratio for investors seeking exposure to emerging markets has been reduced. Weighing is very important.”

He said that exchange traded funds or mutual funds Offering investors the easiest, most accessible ways to diversify into those emerging markets. Yong also suggested that investors may selectively seek opportunities that involve the firm of assets pledged for credit or collateral with massive cash reserves.

However, he advised investors to ensure prudent risk management amid the prevailing macroeconomic conditions. After all, stock exchanges and other investment vehicles in emerging markets are still in their infancy, posing a challenge for retail investors to do due diligence.

Growing Power in Asian Consumers

In particular, Yong sees opportunities in micro-financing in Singapore and other parts of Indochina. For example, he pointed to untapped potential in financing in less banking areas of Asia. Microfinancing has provided a large percentage of the Indochina population who do not have bank accounts with access to a systemic lending institution. Yong highlighted the growing power of the consumer as a major contributor to the growth of the financing industry in the Asia-Pacific region.

“As an emerging market moves forward, there is often rapid income growth that brings with it the rise of a consumer segment,” he explained. “A market full of consumers hungry for new products and services is conducive to the germination of new companies. Here, we see an opportunity to enter the market and provide financing to these fast growing companies. Right in a strategically chosen market With the offerings, a business can expect a steady increase in revenue.”

Evergreen is expanding beyond traditional, traditional methods of funding, setting its sights on creating a seamless ecosystem using fintech and digitalization. Yong said they are pioneering a disruptive model capable of reshaping the microfinancing industry using fintech.

Opportunities in Asian real estate, automotive and materials markets

He also pointed to the growing interest in real estate Markets within the world of finance.

“Financing can aid financial inclusion in the context of international development and social impact,” Yong said. “As the global ideology of housing and home ownership develops, financial inclusion has led to a tendency to turn from income generation to microfinancing to meet the demands and needs of housing. With the rise of privatization of financing, We have seen upside potential within the real estate market in developing countries and emerging countries to generate passive income to meet these demands.”

Currently, Evergreen is focused on private financing deals with developers. The firm has residential, commercial and industrial properties in Singapore, Vietnam, Cambodia and Korea.

Yong also highlighted Singapore as a market with opportunities in the automotive market, particularly in the repair and ancillary claims business.

He explained that Singapore has a higher accident rate than other similar, high-wealth countries, such as Canada and Japan, due to a lack of land and a dense population. Yong said Singaporeans are required to purchase automobile insurance to be able to drive there. As a result, the Evergreen team saw additional opportunities in that market.

Evergreen also sees opportunities in the Korean content industry. Yong said successful release of popular Netflix
Original squid game and the global success of K-pop groups such as BTS and Blackpink. Evergreen is collaborating with South Korean entertainment companies in Southeast Asia.

One of the firm’s investments in this market is the Kosdaq-listed company Rainbowbridge World. Evergreen signed a memorandum of understanding with Rainbowbridge to distribute its content and benefit from the growing global demand for Korean content.

Importance of ESG in Southeast Asia

Yong cited three primary factors that attracted Evergreen to Southeast Asia: regular cash flow, sustainability and social responsibility.

“Not every business is able to deliver the benefits of regular cash generation,” he explained. “For our financing business, almost every deal interest is charged on a monthly basis. For automotive, it usually takes three to six months for claims to be settled. So, we decided to go into financing and automotive because This will enable us to improve our cash flow at the group level.”

Of course, every business must be profitable to survive, but Yong thinks the ESG factors are far more important in the long run. In addition to the impact on the environment and society, he believes that a sustainable business model is one that is responsible and makes a positive impact on a global or local level. The Evergreen team linked its microfinancing investment to the “S” portion of ESG.

“Microfinance is one of the most effective ways to create a positive impact in a sustainable way, providing local people with the financial support they need,” Yong said. “Evergreen works closely with the local community in a number of outreach programs to support and support their financial policies, as well as promoting and supporting social goals.”

Major issues facing Asia-Pacific markets

Of course, no investment sector is without concerns. For example, Yong looks at a range of issues affecting the Asian microfinance markets. He highlighted the social costs on communities when businesses lose their corporate social responsibilities, choosing instead to prioritize profits. Additionally, he cautioned that problematic social norms that are deeply rooted in the sector, such as discrimination and gender inequality, often plague its microfinancing markets.

Over-indebtedness is another important concern with investing in Asian markets. According to Yong, some microfinancing firms fail to do the due diligence required in their race for profitability. Without those checks, default risk increases dramatically, especially if the borrower lacks financial or business training.

Yong believes these issues can be addressed by tightening the rules governing microfinancing and setting more stringent rules for loan issuance and borrower eligibility.

Another problem facing Southeast Asia is the lack of global connectivity. In addition to large entertainment companies such as SM Entertainment and YG Entertainment, smaller entertainment companies face challenges in finding the right partners to work with to distribute their content in Southeast Asia.

The region also faces cultural and linguistic barriers. However, as more Korean entertainment companies partner with Southeast Asian companies, a bridge between the two regions is getting stronger. Evergreen expects these growing partnerships to open more doors for the Korean entertainment market to expand throughout Southeast Asia.

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