By KKR May 23, 2019
When we talk about Asia Pacific, we don’t mean one singular Asian identity. It is an incredibly dynamic and diverse region. There are approximately 50 countries and territories, each with their own cultural, political, economic, environmental and religious landscapes.
Each country’s cultures influence their development and global identities. From Bollywood to K-pop, the combination of the traditional with the contemporary is a powerful force fueling the innovation that is improving the lives of millions and creating vast wealth.
When considering the scale of the world’s most populous region – which is home to more than 4.5 billion people and has more than 6 times as many millennials than the US and EU combined – it is clear that these forces have the potential to reshape the global consumer market1.
The region also accounts for a staggering 60% of the world’s economic growth2. Up to 88% of the next billion entrants to the middle class by 2022 are projected to live in Asia3, and their spending is forecasted to top $35 trillion by 2030.4
This explosion of wealth is driving the rapid development of digitally enabled cities and devices. South Korea and Singapore are expected to be among the top 5 global markets to adopt the Internet of Things (IoT), and over 90% of China’s provinces and municipalities listed IoT as a pillar industry in their development plans.5Rising consumption, a young, internet-savvy population, and urbanization are just a few of the trends supporting our long-term belief in a number of core investment opportunities in the region.
Consumption Upgrades: Asia Pacific consumers are upgrading their lifestyles and seeking higher-quality goods, experiences and healthcare solutions, similar to those in Western markets. Tech-savvy millennials in particular are driving consumption trends. China’s digital payments market is flourishing and is today 80 times larger than in the United States, exemplifying the rapid uptake of new technologies. The increased emphasis on instant deliveries, online shopping, AI-driven consumer solutions, and wellness is creating new, significant opportunities in the “new retail” economy, where online, offline and logistics seamlessly come together.
Carve-Outs/Deconglomerizations: The rising cost of capital, increasing global competition, and increase in shareholders advocating for change created opportunities for corporate restructurings through carve-outs of non-core assets. Approximately 33% of PE buyouts in Asia Pacific in 2017 with valuations of over $500 million were corporate carve-outs, vs. 25% in 2016.6 In Japan, opportunities exist to invest and/or privatize non-core businesses within large companies and publicly listed subsidiaries.
And in Korea, restructuring in sectors experiencing downturns and an increase in major chaebols’ divestitures create investment potential.
Technology: Asia's tech-savvy millennials are driving rapid growth across a range of segments, including new retail, fin-tech and electric vehicles, among others.
For example, strong secular growth across emerging and developed Asia Pacific markets are reshaping retail to align with consumers’ desires for a combination of smart online and offline solutions. And, fin-tech has blossomed thanks to the proliferation of smartphones and the lack of penetration of traditional banking solutions.
All of this is to say that Asia Pacific’s unique diversity, dynamism and explosive growth make it a critically important region in our global investment strategy.