Southeast Asia’s tech take-off is transforming equity markets
Southeast Asia’s thriving technology sector is driving wealth creation and transforming equity markets in the region. Using existing shareholdings to access liquidity – without dilution or foregoing upside – can help investors navigate this changing environment.
Southeast Asia’s equity markets are evolving rapidly as more of the region’s technology champions opt to go public. The latest landmark listing – of Indonesian super-app GoTo – confirms that equity investors in this dynamic region can no longer ignore the rise of new-economy companies as they become a bigger component of its capital markets.
GoTo completed its hotly anticipated IPO in torrid equity market conditions in March, raising over US$1 billion from local and international investors. As well as a major wealth creation event for the founders and early backers of ride-hailing platform Gojek and e-commerce firm Tokopedia – which merged to form GoTo in 2021 – the listing adds to the roster of Southeast Asian technology companies that are now available to investors in the public equity markets.
GoTo joins Southeast Asian peers such as Sea Ltd and Grab Holdings, which are both listed in the US, and e-commerce firm PT Bukalapak.com, which went public in Jakarta in 2021 in what remains Indonesia’s biggest IPO.
It’s still early days for technology firms in Southeast Asia’s capital markets: information technology has a weighting of just 1.54% in the MSCI AC ASEAN Index and only one firm – SEA – features in its top 10 holdings.[1] But the rapid growth of private equity investment in the region points to the likely direction of travel for public markets. According to DealStreetAsia, ASEAN start-ups raised US$25.7 billion from private equity and venture capital investors in 2021, which was more than double the amount in 2020 and well above the previous peak of about US$14 billion in 2018.[2]
The connection between technology stocks and wealth creation is well known in the more developed US market, and has also been prominent in China. As Southeast Asia progresses along the same trajectory, technology companies like GoTo will soon represent a major proportion of equity indexes – and of investors’ portfolios.
ASEAN opportunities
Southeast Asia’s strong fundamentals are a key driver for this growth in capital formation. With a population cresting near 700 million, the combined GDP of ASEAN’s 10 member states reached US$3 trillion in 2020.[3] The bloc is now the world’s fifth-largest economy and is set to add 140 million new young consumers to the world by 2030, driving about US$4 trillion of new consumption.[4] Much of that also hinges on innovation as the majority of young people in Southeast Asia embrace digital lifestyles.
As more of the region’s fast-growing technology companies head to the public equity markets, a new generation of entrepreneurs will benefit. These equity-rich founders and senior executives from newly-listed firms may still be in need of liquidity, though, for purposes such as founding new start-ups or increasing their shareholding in the listed firm.
Likewise, major shareholders in firms that have historically been the backbone of Southeast Asia’s economy – such as natural resources, energy and finance – may want to diversify their portfolios by increasing their exposure to new economy stocks.
Equity financing can be an attractive solution for both groups. Share-backed lending offers a way for individual shareholders to monetise their stakes without sacrificing the potential for long-term appreciation.
Loans based on public equity holdings can be processed quickly and offer attractive interest rates, since the collateral reduces the risk to the lender. And at the end of the term of the loan, the shares are returned to the borrower, allowing them to retain exposure to the performance of the underlying stock.
GoTo’s landmark IPO makes it clear that technology is transforming Southeast Asia’s equity markets – and wealth creation dynamics. For investors who have driven this trend – or want exposure to it – share-backed financing can be a compelling solution.
[1] https://www.msci.com/documents/10199/898cceae-3062-4000-a1a4-9877c6d8325e
[2] https://asia.nikkei.com/Spotlight/Market-Spotlight/Gold-rush-ASEAN-startup-fundraising-more-than-doubled-in-2021
[3] https://www.aseanstats.org/wp-content/uploads/2021/12/ASEAN-KEY-FIGURES-2021-FINAL-1.pdf
[4] https://www.bain.com/insights/future-of-consumption-in-fast-growing-markets-asean-2030/
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