KKR: Time to ‘lean in’ to Asia

In a report on the region the private equity giant tells investors to capitalise on Asia’s emerging markets story through opportunities in regional expansion and higher value-add services.

Emerging Asia is becoming a significant part of the private equity market and private equity investors are well positioned to step up deals around “experiences over things” and regional expansion.

Emerging Asia now accounts for 25 percent of global growth, just behind China at 35 percent, brought about by an increasing working age population and improving productivity levels. As such, KKR head of global macro and asset allocation Henry McVey, has said that institutional investors should not miss out on the opportunity and “lean in” to Asia private markets.

“This transition is a big deal, in our view, as it is creating notable winners and losers, particularly among providers that can offer the perception of aspirational value to middle class consumers who increasingly want to upgrade their lifestyles,” McVey wrote in his latest macro research report Asia: Leaning In.

He added that as emerging Asia’s purchasing power increases, a trend toward better experiences in leisure activities, retail and healthcare will create opportunities in the in consumer markets of Vietnam, China, Indonesia and India.

The report also highlighted the impact technology is having on the delivery of high value-added goods and services. Delivery preferences are changing quickly in Asia – China’s digital payments market has surged from just $15 billion to $9 trillion in size in the last six years and is now 80x greater than that of the US – and the shift has affected more traditional areas such as logistics, real estate and transportation.

McVey also noted that China is not the only country in Asia with global ambitions. The desire for Asian companies to expand abroad also represents a significant opportunity for global private equity firms to help facilitate entrance into new markets, including the US. and Europe.

In addition, initiatives like the China-led Regional Comprehensive Economic Partnership and One Belt, One Road will accelerate the trend and bolster regional connectivity.

“Asian companies are benefitting not only from surging domestic demand for higher value-added services, but also the opportunity to export their offerings abroad through a variety of channels, including M&A and joint-ventures. Key industries on which to focus include technology, healthcare, travel, and financials,” he wrote.

McVey meanwhile predicted in the report that even with China’s heavy debt load, slowing global trade and geopolitical risk, especially around North Korea’s growing nuclear capability, Asia is best positioned to weather the trade trends.