(Dec 2): Has the golden age of asset management finally arrived in Asia? For years, Asia’s hottest unicorns left their homelands to list in New York for one simple reason: a deep pool of US money. And they have been rewarded. From Alibaba Group Holding to JD.com, more than a dozen Chinese companies listed there have a market capitalisation of US$10 billion ($13.6 billion) or more.
But Alibaba’s Hong Kong listing may be changing things. The e-commerce giant raised about US$11 billion in the city’s largest issuance of stock since 2010, with about one-third of the tranche taken up by mainland Chinese fund managers. Other regional buyers were enthusiastic, too. Taiwan’s life insurer Fubon Financial Holding Co, for instance, placed a US$500 million order.
This all goes to show that Asian investors are just as wealthy and eager as those in New York, which could go a long way towards making Hong Kong and Singapore more attractive listing venues. The region’s ageing savers have amassed more than US$10 trillion of wealth in the form of pension funds, mutual funds and insurance policies, HSBC Holdings estimates. With billions to deploy, Taiwan’s insurers and China’s mutual funds may find benefits to trading stocks in their own time zone, if only for their portfolio managers’ work-life balance.
Asia’s bustling IPO market also bodes well for the region’s restless unicorns, whose listing window in the US is closing fast after a series of high-profile flops. If Americans cannot stomach Uber Technologies, how will they have an appetite for Southeast Asian clones such as Grab or GoJek? To make matters worse, US investors have been pulling money out of emerging markets over the past several months. The MSCI Emerging Markets Index peaked in January 2018, while the Standard & Poor’s 500 Index continues to hit daily records.
There is one major caveat, however. Local investors can be a tough sell. Foreign money managers tend to think of Asia’s biggest start-ups as a proxy for the macro scene, much in the same way that New York investors saw Alibaba as a bet on China’s rising consumer class. Domestic players, on the other hand, are living and breathing the macro picture, so they are concerned primarily with company metrics. If you are sitting in Jakarta traffic, you are acutely aware of the challenges a ride-hailing company there faces; a foreign billionaire such as Masayoshi Son just sees a thriving population with thousands of young, mobile-phone users.
Super-apps are another example. The region’s hottest unicorns like to pitch these all-in-one platforms to venture capital investors. To improve operational efficiency, they argue, more cash is needed to expand regionally. But that business model relies on the assumption that the social-media habits of a 22-year-old Vietnamese would not be too different from an Indonesian’s. This might not fly with a local investor, who is more adept at discerning cultural differences.
Deeper local knowledge can also help avoid expensive mistakes. In October, Indian start-up Oyo Hotels and Homes raised US$1.5 billion from SoftBank Group Corp, among other investors, as it looked to expand into foreign markets. Yet, Chinese fund managers largely stayed away — and for good reason. Last week, Reuters reported that Oyo is unlikely to hit profitability in India and China until 2022. Similar reports had circulated in local Chinese media months ago, pointing out that the company had no traction on the mainland, even though it boasted of being the largest single hotel brand there. SoftBank’s Son may now have a tough time convincing investors in Hong Kong that Oyo is worth more than US$10 billion, the valuation at its latest funding round.
In truth, Alibaba may not be the best test case to determine if Asia’s pool of money will slosh towards young companies. Within two business days, institutional investors can swap their Hong Kong-listed shares for stocks in New York, should they feel liquidity in the Asian city is thin. That option to flee to a US haven may have brought hesitant investors on board in the first place.
As Asia’s unicorns grow bigger, many are looking at dual listings to ensure there is enough demand to absorb their sizeable offerings. Indonesia’s e-commerce platform Tokopedia, for instance, is considering a listing on multiple bourses as it seeks a pre-IPO funding round. This, to me, is a sign that Asia is not ready to be self-sufficient just yet. Saudi Arabia may be able to jam Aramco down local investors’ throats, but Asia’s start-ups are still stuck with a New York investor base that has a diminishing appetite for them.
