Emerging Asia’s mid-market corporates need private credit too

29 April 2025

Private credit in Asia is growing fast, but the next wave of alternative credit opportunities lies in companies in the region’s less-developed markets.

Vietnam was one of the biggest beneficiaries of Donald Trump’s tariff war with China during his first term as US president. As China’s exports to the US waned in the 2016-2023 period, Vietnam’s exports^[1] of furniture, footwear, electric machinery, plastics, toys and sports equipment surged.

That increase has not escaped the attention of Trump in his second term, however, and he has threatened Vietnam with ‘reciprocal’ tariffs of as much as 46% as part of his recent upending of the global trade landscape. Those tariffs are subject to a 90-day ‘pause’ that was announced on April 2, but the frontloading of trade^[2] in anticipation of the new tariffs will doubtless have only added to strong export numbers for the year.

Should the proposed tariffs for Vietnam be enacted, the country’s economy would take a steep hit, likely declining by more than 10% this year.^[3] But Vietnam has shown a willingness to drop tariffs on US imports^[4] and buy more goods from the US.^[5] And while the exact contours of the final US tariff regime remain the subject of much debate, variations in the treatment of trading partners could even create opportunities for companies in other markets in Asia, including India and Singapore.^[6]

Whatever the eventual picture, Vietnam and other emerging markets may well be able to weather the storm given that global companies will surely continue to accelerate their efforts to diversify supply chains away from China. Additionally, China’s transition towards a consumption-driven model could also help to boost intra-Asia demand.

What Vietnamese entrepreneurs will need to capture these opportunities is credit that can help them withstand the near-term turbulence and build on the progress of recent years. After all, Vietnam’s share of global goods exports reached 1.7%^[7] in 2022, putting it on a par with India. At a time of rising conservatism among lenders, securities-linked financing can be an ideal source of this credit.

Strong fundamentals for Asian SME business growth

In Asia, banks have traditionally been the main lenders for enterprising businesses with an eye towards the global market. But geopolitical and trade tensions are expected to lead to greater wariness. Loan growth is slowing in India^[8] and Indonesia,^[9] and ratings agencies have turned cautious on the banking sector in Thailand and Vietnam,^[10] especially as the second order effects of the impact of US tariffs on Chinese demand have yet to materialize.

With little headroom to lower rates in Thailand and Malaysia, and higher government borrowing costs preventing India and the Philippines from deploying fiscal largesse,^[11] companies can also not expect too much public sector support.

Take a longer term view, however, and the growth prospects of SMEs and mid-market corporates in Asia remain sound. Companies are increasingly trading within Asia: the value of intra-regional trade has increased by 8.2% annually from 1990 to 2023,^[12] faster than the growth of extra-regional trade, at 6.8%. And the number of households entering the middle class in Asia Pacific is expected to exceed a billion by 2034.^[13]

As such, companies will benefit from ‘China+1’ strategies as supply chains are re-routed. Alternative credit is sorely needed for well-managed businesses that can navigate the coming months of tariff-induced business uncertainty and reap the rewards.

The private credit market in Asia Pacific has doubled in size over the past five years, according to Preqin,^[14] but it still accounts for less than 7% of the global market.^[15] Global marquee institutional investors have also increased their allocations to the region: Canada’s state pension manager CPP Investments has committed close to $5 billion in Asian private credit.^[16] But much private credit goes to large corporates, rather than mid-market corporates and SMEs.

For investors considering private loans for creditworthy borrowers in emerging Asia, there are significant opportunities for predictable returns uncorrelated with local or international market cycles.

It’s a formula that works and has already improved incomes in the region: a Singaporean study last year found that credit provided by fintechs helped incomes in Southeast Asia grow faster in countries with high bank lending ratios, or where bank loan books were already stretched but small businesses craved credit.^[17]

Interest in alternative credit as an asset class is growing among high-net-worth individuals at a time of market volatility, as banks in developed markets are creating relevant products. Last month, State Street and Apollo Global Management combined forces to launch PRIV,^[18] an actively managed ETF providing access to investment-grade private credit markets.

In a similar vein, fintechs in Asia often offer indirect exposure to SME credit as they source their funding from local and international banks. Funding Societies in Indonesia, for example, signed a third credit facility with HSBC last year^[19] that will enable it to distribute up to US$100 million in loans to underserved micro and SME segments in Southeast Asia.

There are also avenues for direct participation through private banks and bespoke loan agreements. However, Asia’s diverse legal landscape, with challenges over creditor protection and enforcement in certain jurisdictions, must be borne in mind. When dealing with lower-rated borrowers and riskier structures, recovery prospects in an event of default can also be uncertain.^[20] 

To compensate, private credit investors can secure better payment terms and guarantees and take advantage of opportunities in emerging markets. 

Securities-backed financing can help unlock liquidity for investors who would be keen to capitalize on the stable returns and consistent cashflows on offer in the private credit universe.

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[1] https://www.gbm.hsbc.com/en-gb/insights/global-research/trade-in-2025

[2] https://www.scmp.com/economy/china-economy/article/3306517/chinese-factories-vietnam-see-crazy-surge-orders-amid-us-tariff-pause

[3] https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2025/q2/losers-and-relative-winners-of-trumps-shapeshifting-tariff-war.html

[4] https://www.bloomberg.com/news/articles/2025-04-06/vietnam-offers-to-remove-all-tariffs-on-us-after-trump-action

[5] https://www.reuters.com/world/asia-pacific/vietnam-says-buy-american-defence-security-products-trump-tariffs-loom-2025-04-08/

[6] https://www.reuters.com/world/brazil-egypt-singapore-among-potential-winners-tariff-onslaught-2025-04-08/

[7] https://www.ft.com/content/07f78a64-5966-423c-ab8e-595e41b9c31c

[8] https://www.reuters.com/world/india/indian-banks-loan-growth-slows-eighth-straight-month-february-rbi-data-shows-2025-03-27/

[9] https://asianbankingandfinance.net/retail-banking/news/indonesian-banks-face-slower-loan-growth-if-tariff-war-escalates

[10] https://www.fitchratings.com/research/banks/tariff-war-adds-to-risk-facing-some-apac-banking-sector-outlooks-16-04-2025

[11] https://www.reuters.com/world/asia-pacific/which-asian-countries-have-chance-offset-trumps-tariffs-raychaudhuri-2025-04-16/

[12] See Executive Summary in https://www.adb.org/sites/default/files/publication/1042516/asian-economic-integration-report-2025.pdf

[13] https://www.jll.com.sg/en/trends-and-insights/research/apacs-middle-class-thriving-despite-economic-hurdles

[14] https://iqeq.com/insights/why-private-debt-is-set-to-soar-in-asias-63-trillion-credit-market/

[15] https://preqin.com/insights/research/research-notes/whats-holding-back-private-debt-in-apac

[16] https://www.top1000funds.com/2025/03/investors-overlook-apac-private-credit-despite-attractive-returns/

[17] https://ink.library.smu.edu.sg/soe_research/2800/

[18] https://investors.statestreet.com/investor-news-events/press-releases/news-details/2025/State-Street-Global-Advisors-Democratizes-Access-to-Investment-Grade-Private-Credit-Markets-with-New-ETF/default.aspx

[19] https://www.prnewswire.com/apac/news-releases/funding-societies-secures-third-credit-facility-with-hsbc-to-extend-access-to-msmes-in-southeast-asia-302295543.html

[20] https://www.linkedin.com/pulse/aplma-global-loan-market-summit-hong-kong-%E5%85%A8%E7%90%83%E8%B4%B7%E6%AC%BE%E5%B8%82%E5%9C%BA%E5%B3%B0%E4%BC%9A-aplma-qlarc/?trackingId=vR5r5N6XFUloei03v7wznw%3D%3D