- It is predicted that global foreign direct investment (FDI) would fall by 40% this year.
- Opportunities Asia has followed this trend, with greenfield investment projects falling by 37% year on year in the first quarter, and the number of M&As down by 35% year on year in April alone.capitalise on
- Countries across this part of the world are seeing a surge in business, with the likes of Vietnam reportedly fending off the virus and seeing a surge in demand from international manufacturers.
The fallout of the coronavirus is still being felt around the world. It has impacted on every industry and there are still question marks around exactly how much damage it has done to the global economy.
Business investment remains one area that is significantly affected by the pandemic, with the number of mergers and acquisitions (M&As) dropping dramatically in recent months. According to the World Investment Report 2020 by UNCTAD, the UN’s trade body, it is predicted that global foreign direct investment (FDI) would fall by 40% this year. It also stated that greenfield investments and M&As had already fallen by over 50% year on year in the first quarter of 2020.
Generally, Asia has followed this trend, with greenfield investment projects falling by 37% year on year in the first quarter, and the number of M&As down by 35% year on year in April alone. UNCTAD expects FDI flows in Asia to reduce by as much as 45%.
While FDI is on a decline, international portfolio investors have driven large capital outflows. According to the Institute of International Finance, Southeast Asian economies have taken a hit as a result of this, with notable regional currency depreciations, especially the Indonesian rupiah, which had dropped in value by 14.5% by April alone.
For financial traders charting these currency changes, the earlier months in the crisis proved especially significant, as uncertainty led to a move towards increasing outflows.
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Opportunities to capitalize on
Despite this outlook, it seems Southeast Asia is beginning to buck the downward trend. Countries across this part of the world are seeing a surge in business, with the likes of Vietnam reportedly fending off the virus and seeing a surge in demand from international manufacturers.
There are several reasons why it could be a good time to invest in businesses in the region right now. First, investors are looking for the best deals on firms that were profitable before COVID-19 that have been impacted by the crisis. Companies that might not have had a grip on their finances but have a good business model are potentially ideal investments for those involved in acquisitions.
Second, for start-ups that have weathered the storm financially so far, there’s room for growth and the chance to capitalize on the current situation. In addition, any businesses that have seen an uptick in interest, from e-commerce sites and online entertainment to online education tools, there is likely to be opportunities to expand in this home-based world we are in.
Weigh up the risks
However, M&As in Southeast Asia at this time could prove risky. It is uncertain whether any investments made will see any returns – even for the younger businesses that are tapping into the current demand for online retail and entertainment.
This uncertainty is causing a drop in valuations, especially for more mature companies that already have investors that are expecting to place the business on the market or to start selling off assets. While there is room for investors to cash in on mergers that come about as a result of these assets being sold off, there is still an element of doubt over whether there will be a return on investment and how long it will take for this to come into effect.