Article
Charting the Dragon's ascent: Navigating investment strategies in Asia
6 February 2024 | Applicable law: Hong Kong, Japan, Singapore | 3 minute read
As we step into 2024, the year of the Dragon, Asia is expected to undergo transformative shifts across various sectors. Experts foresee a period of innovation, adaptation and mobility with the aim of sustainable growth, which aptly reflects the dynamic spirit of the dragon in Asian culture. In this three-part series, we delve into key developments and share predictions on various sectors across Asia.
In the fast-paced world of investment funds, a rising interest in sustainable investing marks a significant opportunity for integrating environmental, sustainability and governance (ESG) factors into investment strategies, aligning financial goals with social and environmental responsibility.
Morgan Stanley reported that sustainable funds outperformed traditional funds in 2023, with their assets under management (AUM) now accounting for about 8% of total global AUM. Over 20% of global AUM now employ ESG-related criteria in screening potential investments, a significant increase from a mere 2% in 2019.
Daniel Yong, a Singapore-based partner in Withers' funds and corporate team, forecasts a more nuanced approach to investment, 'We are seeing a rise in thematic funds and anticipate that this will continue, particularly those focusing on green technology and social governance. This trend will be driven by a variety of factors including investor demand driven by both institutional capital and private wealth, as well as regulatory changes across Asia.'
Simon Wong, a Hong Kong-based investment funds partner in Withers adds, 'The integration of artificial intelligence (AI) and big data analytics in fund management will also play a crucial role in identifying and assessing investment opportunities and the associated ESG considerations, leading to more informed investment decisions.'
We are seeing a rise in thematic funds and anticipate that this will continue, particularly those focusing on green technology and social governance.
The growing focus on sustainability has also highlighted a need for education and regulation. Leong Chuo Ming, a Singapore-based partner in Withers' corporate team shares, 'In Singapore, the Institute of Singapore Chartered Accountants and Law Society of Singapore have recently developed a programme that enables professional services firms to provide sustainability services in Singapore and regionally. Singapore is also on track to becoming the first country in Asia to roll out mandatory climate-related disclosures on non-listed companies, as recommended by its Sustainability Reporting Advisory Committee set up by the Accounting and Corporate Regulatory Authority and the Singapore Exchange Regulation.'
The corporate and mergers and acquisitions (M&A) sector is seeing a pivotal shift, with a growing emphasis on ESG criteria.
Chuo Ming explains, 'This shift is driven by increased consumer demand for sustainable practices, evolving regulatory landscapes, and the need to align with global ESG standards. Businesses are looking beyond mere financial metrics, delving deep into the ESG profiles of potential targets to ensure long-term value and resilience.'
Businesses are looking beyond mere financial metrics, delving deep into the ESG profiles of potential targets to ensure long-term value and resilience.
'The focus on ESG is reshaping due diligence processes,' Chuo Ming observes. 'Organizations are meticulously evaluating environmental impacts, social practices, and governance structures of target companies to identify risks and opportunities that traditional financial analyses might overlook.'
Post-merger integration also sees an ESG-centric transformation. Chuo Ming explains, 'Aligning and integrating ESG practices in the post-acquisition phase is not just about compliance; it’s about seizing opportunities for operational efficiencies, brand enhancement, and accessing sustainable finance.'
Family enterprises are expected to re-evaluate their M&A strategies, anticipating a possible increase in transaction volumes. Mabel Lui, head of Withers' Greater China commercial practice shares, 'This involves assessing potential acquisitions to enhance product offerings, considering vertical integrations for margin improvements, and aligning business segments with overall strategic goals. Such proactive planning positions family enterprises and private capital to effectively navigate and capitalize on the evolving M&A landscape.'
Japan's broader economic and strategic ties with Southeast Asian countries have been strengthening.
Yutaka Sakashita, a Singapore-based partner in Wither's corporate team and head of the firm's Japan desk foresees, 'In particular, the region's developments in infrastructure development and overall economic growth continues to play a pivotal role in Japan's investment strategy in Southeast Asia.'
He elaborates, 'Japan's broader economic and strategic ties with Southeast Asian countries have been strengthening. An example includes the comprehensive strategic partnership established between Japan and Vietnam which signifies a broad expansion of both security and economic ties. Additionally, Indonesia maintains robust investment inflows and the Philippines continues to attract foreign investment due to its demographics and market growth potential.'
Read the second instalment in this three part series here.
Read the third and final instalment in this three part series here.
Should you wish to delve deeper into any of the points raised in this series or seek the benefit of our expertise, please reach out to your designated contact at Withers or any of the lawyers listed below.
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