Bain outlines factors for Southeast Asia outlays

Global consultancy Bain & Company has shared three key factors it expects will impact investment in Southeast Asia this year: a growing working population, “the great re-rating” of tech companies, and environmental, social and governance (ESG) as a growing priority for investors.

Suvir Varma, senior adviser of Bain & Company Global Private Equity Practice, said investors interested in Southeast Asia should have defined themes with a clear investment thesis for each asset.

He said the region has robust fundamentals, arising from its young, large and digitising population. The Asean working population is forecast to increase by 40 million people in 2030, with labour from countries such as Vietnam costing half of the rate for workers in China.

However, although the overall working demographic will grow in the region, the working age population in Singapore and Thailand is projected to decrease, according to Bain. By 2030, the workforce in Thailand is projected to decline by 3 million and in Singapore by 300,000 people.

The urban population in Asean is forecast to increase by 5 million a year until 2050, complemented by an expanding middle class and growing income per person.

“For investors taking a long-term outlook on growth in the region, we think this is a positive view and all these structural factors remain intact and will continue to support growth in Southeast Asian investment,” said Tom Kidd, partner of Bain & Company’s Southeast Asia Private Equity Practice.

The next factor is price volatility for Asean tech unicorns, such as the super-app developer Grab and global consumer internet company Sea in “the great re-rating”, which is a period in which tech companies are seeing sharp drawbacks in the markets, triggered by international conflicts.

With the value of tech companies fluctuating, Mr Kidd said this has implications for private market investment.

“There is potential for down rounds and resetting of valuations by lead investors in financing over the course of 6-12 months,” he said.

Mr Kidd said a company’s funding runway is more important than ever. Companies with strong balance sheets and low burn rates will be more competitive.

The final factor is ESG criteria as investors increasingly integrate this in their due diligence process, said Bain. According to a survey by Bain & Company, more than 95% of respondents value sustainability and ESG, with the most popular ESG investment themes being clean energy and inclusive communities.

However, despite great potential, Mr Varma said Thailand is overlooked by Asean investors because there are fewer businesses looking for private capital and the country has a lower deal flow rate.

“It’s not that there are investors unwilling to look at Thailand, it’s just that there aren’t as many deals available in Thailand of the size and scale that would give investors comfort,” he said.

Usman Akhtar, partner and head of Bain & Company’s Southeast Asia Private Equity Practice, said Thai conglomerates are also less open to private equity capital.