Market Predictions for 2018
Contrary to what many may think, the common Lunar New Year greeting of Gong Xi Fa Cai (or Kung Hei Fat Choi in Cantonese) does not translate into ‘Happy New Year’. Instead, it is a wish for the recipient of the greeting to experience wealth and prosperity. Coming off a strong 2017, the Asia markets are showing all the signs that a prosperous 2018 is in the cards.
The Singapore Business Review and the Intralinks Deal Flow Predictor forecasts that M&A in the Asia-Pacific region will increase by 14% in the first half of 2018 over the same period in 2017. M&A deals globally are forecasted to grow by up to 10%, showing that Asia-Pac is ahead of the market. What fuels this M&A growth? The report predicts that energy, power, real estate, consumer/retail, and materials sectors will fuel this growth. In terms of geographic markets, look to Southeast Asia to be the strongest M&A driver out-of-the-gate in 2018, with India and North Asia (China, Hong Kong, Korea) making a robust showing as well.
One Belt, One Road
Despite a sluggish 2017 due to new Chinese regulations, outbound M&A deals from China are expected to rise in 2018, particularly in sectors connected to China’s “One Belt, One Road” initiative – a neo-Silk Road policy announced by President Xi Jinping in 2013. The “belt” refers to the physical road, whereas the “Road” refers to the Maritime Silk Road: shipping lanes that track the same routes used by Marco Polo in his trading days.
The “One Belt, One Road” plan aims to connect Asia, the Middle East, Europe, and Africa with a far-reaching logistics and transport network. This means any industry involved in building and maintenance of roads, ports, pipelines, railways, airports, and even electric grids and fiber optic lines will stand to benefit from China’s plan that McKinsey strategists are calling “the most ambitious economic and diplomatic program since the founding of the People’s Republic.”
When fully implemented, One Belt, One Road could cover approximately 65% of the world’s population, 65 different countries, one-third of global GDP, and 25% of all the goods and services transported globally.
The South China Morning Post reports that cities along this New Silk Road are rushing to capitalize on their proximity to future global trade. Cities such as Zhuhai and Fuzhou – both cities along the New Silk Road – have held a series of tourism expos and economic forums to help bolster their profiles as up-and-coming economic hot zones.
Ultimately, One Belt, One Road will further integrate China with the rest of the world and open more avenues for cross-border transactions in 2018.
Private Equity – Expect Mega
2018 could be the rise of the PE “Megafund” in Asia. Hillhouse Capital Management, the Chinese fund that helped lead 2017’s biggest-ever PE buyout deal in Asia, is aiming to raise approximately $6 billion in a new private equity fund. In June 2017, KKR raised $9.3 billion for its third Asia fund, constituting the largest pool ever created by a PE firm in Asia.
“We see a diverse set of opportunities across Asia Pacific stemming from rising consumption and urbanization trends in key markets as well as larger carve-out and cross-border transactions in countries such as Japan,” Ming Lu, head of Asia private equity at KKR, said.
Equity Capital Markets – All Eyes On Xiaomi
Globally, 2017 was the most active IPO year since 2007. In 2017, the number of companies listed on the Hong Kong Stock Exchange hit 174, a new high. Asian exchanges occupy three of the top five stock exchanges by IPO funds raised in 2017. Expect both equity and debt capital markets to continue to proliferate across Asia, as well as globally, for 2018.
Forbes is predicting 2018 to be a “renaissance year” for Asian IPOs. Disappointed by its third-place showing in the global IPO race in 2017, and still stinging from losing Alibaba’s IPO to the NYSE in 2014, Hong Kong is giving its listing rules an overhaul to attract more “new economy” tech companies to the HKEx. All focus is, of course, on Xiaomi. The Chinese smartphone maker is expected to IPO – most likely on the Hong Kong Stock Exchange – in the second half of 2018. Xiaomi’s IPO could be worth as much as $100 billion.