In 2022, PropertyGuru, Southeast Asia’s main property expertise firm, made its public debut on the New York Inventory Alternate by means of a merger with a SPAC, amid excessive expectations.
Quick ahead to early 2024. The corporate’s shares had misplaced about 60% of their worth at one level, prompting a buyout by non-public fairness agency EQT at a valuation of $1.1 billion—under the $1.6 billion valuation when the startup listed simply two years in the past.
PropertyGuru exemplifies the formidable challenges that Southeast Asia’s unicorns face after they step into the worldwide monetary markets. Worldwide buyers don’t at all times recognize native success, however Southeast Asian firms lack viable alternate options nearer to house.
As international markets flip more and more inward, rising markets like Southeast Asia threat being left behind within the funding race. Southeast Asia’s innovation ecosystem may stagnate if it might’t get enough liquidity flowing into the area.
Why are Southeast Asian startups itemizing within the U.S.?
The U.S.’s deep swimming pools of capital are engaging to Southeast Asian firms hoping to go public. However the reality is that many U.S.-listed Southeast Asian firms wrestle to realize traction post-IPO.
Southeast Asian firms on the Nasdaq have had a dismal efficiency, with a median worth decline of 80%. That makes it not possible to boost new capital, given depressed valuations and lack of investor curiosity.
Regardless of its robust market presence in Southeast Asia, PropertyGuru struggled to leverage the intensive capital alternatives promised by the U.S. market. Why would overseas small cap shares achieve traction amongst U.S. buyers, who can decide amongst many bigger and acquainted names?
Southeast Asia’s dependence on U.S. exchanges is a symptom of a deeper drawback within the area’s capital markets: Low buying and selling volumes.
The mixture common each day buying and selling quantity of the six main Southeast Asian exchanges—Singapore, Indonesia, Malaysia, Philippines, Thailand, and Vietnam—is simply $5 billion, in comparison with $200 billion traded on the Nasdaq and the New York Inventory Alternate.
Totally different exchanges even have completely different itemizing guidelines, making it difficult for Southeast Asian firms to faucet the assorted home swimming pools of capital.
How can Southeast Asia’s exchanges be fastened?
Southeast Asia wants a very regional market, the place firms can increase funds from numerous home swimming pools of capital, and buyers in a single nation can simply commerce in securities listed in a foreign country.
Final 12 months’s initiative by the Inventory Alternate of Thailand and Singapore Alternate to permit buyers to entry securities traded in both change by way of a depository receipt is an efficient begin.
However extra could be achieved.
Southeast Asia has one of many world’s highest financial savings charges. This capital must be channeled to constructing sturdy regional—and never simply home—swimming pools of capital invested in firms listed in Southeast Asia. Regionally-focused property, managed by those that perceive Southeast Asia, will make the area’s public markets extra vibrant.
How the capital is deployed is essential too. Passive capital allocation or indexation received’t unlock worth for small however rising firms. As a substitute, capital must be allotted to energetic asset managers with a transparent mandate to put money into Southeast Asia. These asset managers are greatest positioned to establish rising alternatives, and make investments the time and vitality to grasp the businesses’ prospects.
There are constructive examples outdoors the U.S. India’s inventory markets, with $470 billion in home AUM, report a each day buying and selling quantity of about $16.5 billion, greater than 3 times the six main Southeast Asian exchanges mixed.
India encourages people to repeatedly make investments small components of their paychecks into mutually funds by means of Systematic Funding Plans (SIP). This directs home financial savings into the inventory market and provides firms the capital they should develop. In response to AMFI information, SIPs’ share in mutual fund inflows has surged from round $100 million in February 2021 to a document $235 million in December 2023.
One other instance is the Nasdaq Stockholm in Sweden, now the envy of Europe because of constant funding from retail buyers and Swedish pension funds. Over the previous decade, the principle index has surged by 85%, outperforming the Euro Stoxx 600 index’s 49% enhance and London’s FTSE 100’s modest achieve of 17%, based on the Monetary Occasions.
The lesson from India and Sweden is easy: liquidity begets liquidity. Regional funding will in flip appeal to international flows in Southeast Asia, constructing a extra sturdy funding escalator.
Regulators may also help in different methods too. They may supply differentiated tax charges for Southeast Asian firms to go public, minimal friction for buyers that wish to put money into the area, and simpler entry to analysis on Southeast Asian firms.
Southeast Asia’s potential for progress an innovation is simple. But the area struggles to make sure that there’s sufficient homegrown capital to maintain this momentum.
Retail buyers shouldn’t must look to the U.S. markets to put money into one of the best Southeast Asian unicorns.
By harnessing regional financial savings, Southeast Asia can create extra self-reliant and resilient funding surroundings for its future unicorns. Empowering the area’s startups and progressive firms is a necessity to safe Southeast Asia’s place within the international financial system.
The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t essentially mirror the opinions and beliefs of Fortune.
