July 14, 2022

Market Spotlight: Volatility opens novel M&A opportunities in APAC

Though home to several high-growth markets, APAC is not immune to the anxiety characterizing 2022, and there is an expectation that economic expansion will decelerate.

According to OECD figures, China is projected to record GDP expansion of 4.4% this year, down from 8.1% in 2021. India’s deceleration is expected to be less severe, falling from 8.7% to 6.9% in 2022. Australia, too, is in for harder times, with 4.8% growth last year projected to decelerate to 4.2% in 2022 and 2.5% next year.

 

West re-evaluates APAC position, China consolidates regional lenders

That degree of braking will inevitably weigh on dealmakers’ minds. But volatility can have its benefits, raising novel opportunities. The same Sino-US tensions that may dampen cross-border activity in one sphere may create openings in others. For instance, some Western financial institutions are having to re-evaluate their APAC positions—even HSBC is under pressure to separate its western and Asian businesses. Domestic-specific forces are also at play. In a bid to de-risk the banking sector, the Chinese government is moving to consolidate regional lenders in the country.

 
Stricter and more severe liquidity requirements in India

Indian financial firms are in a similar boat, exemplified by the proposed merger of HDFC and Housing Development Financing Corporation. In light of the shadow banking crisis that beset the sector towards the end of the previous decade, the Indian government is introducing stricter regulation with more severe liquidity requirements. The HDFC deal may be just the first domino to fall.

 

Potential inorganic growth in Australia’s telecom, energy, and mining sectors

Other key sectors in APAC stand to benefit as well. For investors in search of safe assets, Australia’s telecoms industry may be just the ticket. Riding the wave of digital transformation, players in the space are looking to upgrade key telecoms infrastructure. Australia’s energy and mining sectors, too, ought to be able to capitalize on higher commodity prices, at least in the near term, which may enable companies to pursue inorganic growth even as the national economy decelerates.

Even in the face of macro uncertainties that seem to be reaching all corners of the world, nothing is black and white in the M&A space. For prudent dealmakers, there are plenty of opportunities to found in the grey areas.

 

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