The slowdown in China’s economic growth will heighten interest in Southeast Asia, beginning gradually over the next several years. The 10 countries in the Association of Southeast Asia Nations (ASEAN) -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (also known as Burma), the Philippines, Singapore, Thailand and Vietnam – now offer, as a region, some of the same kinds of opportunities for U.S. private equity investors and strategic buyers that China has over the last 20 years. (Don't forget to check out As China's Economy Falters, Southeast Asia Attracts Dealmakers.)
ASEAN countries offer low-cost manufacturing facilities, inexpensive labor and a growing domestic market. The region includes five of the top 25 countries as measured by GDP, and 65 percent of the combined 625 million people there are younger than 35. China’s labor costs have risen lately, particularly in coastal areas of the country. Vietnam, the Philippines and Malaysia are starting to win manufacturing contracts that used to go to China for items that are not high value-added. Labor-intensive manufacturing, such as for textiles, will emerge in Vietnam and Cambodia.
Southeast Asia’s most promising sectors include logistics, consumer goods, food and beverage, infrastructure, education and health care, according to Navis Capital Partners, a middle-market-focused private equity firm based in Kuala Lumpur, Malaysia. The firm acquired controlling ownership stakes in two retail businesses in 2015: Nitipon Clinic, a chain of centers providing facial treatments and other cosmetic procedures in Thailand; and Imperial Treasure, a chain of 21 fine-dining restaurants in Singapore.
China’s central bank continues to attempt to jump-start growth by cutting interest rates and lowering the amount of cash that banks must hold as reserves. Rather than wait to see if these measures help, investors are expected to look elsewhere.