Europe to be the ‘tech investment playground’ for Asia?
Business Management

Europe to be the ‘tech investment playground’ for Asia?

Earlier this year Magister Advisors, a specialist investment bank focusing on exit preparation, M&A and alternative financings, suggested that while Asian capital into European tech reached an all-time high of $58B last year, it will double this year in the wake of the US political climate. The firm stated that “2017 will be a watershed year for Asian investment into European tech” adding that the most active recipient was likely to be the UK.

I contacted Magister Advisors for further comment and nobody got back to me. However, plenty of other individuals in currency and investment firms were happy to voice an an opinion on the likelihood of this trend.  

Sino-British entrepreneur and executive chairman of Gate Ventures, Dr Johnny Hon, believes: “The analysis may prove to be correct but it is too early to say.

“In general terms, Asian technology investors will be looking to both the European and North American markets. If US relations with China deteriorate markedly, which is a possibility, then this will certainly affect investment from that country. However, it is also possible that Chinese investors may seek to get behind Trump's domestic economic agenda for mutual benefit,” he says.

Chris Lewis, partner at M&A firm Results International stresses that “this is not a new theme. He says “we have been seeing this in our business for several years across the technology, marcomms and healthcare sectors.”

This point is also taken up by Mike Laven, CEO of payments platform Currencycloud – which received $18M investment from Japanese firm Rakuten back in 2015:

“For the last few years, Asian investors have been showing a keen interest in European tech – and fintech in particular. China tripled its fintech investment in 2016, meanwhile the Singapore and Hong Kong governments have made progressive regulatory changes to encourage fintech development. With Asia looking to pick up the pace in fintech, it stands to reason that the UK – the global leader in this sector – would stand out as an investment of choice.”

Sino-British entrepreneur and executive chairman of Gate Ventures, Dr Johnny Hon, partially agrees with conclusions. “What seems clear is that technology investment and development globally will be increasingly driven by Asian funds and entrepreneurs. This will help create a tendency to diversify from, but not exclude the US, and invest more in Europe.

“Openness to foreign investment in both Europe and the USA is necessary to properly tap into Asian investment, but this will have to be squared with the populist backlash against globalisation currently making waves in the developed economies. Economics will therefore continue to be the plaything of politics for the present, leading to unpredictable outcomes,” he adds.

Mr Paresh Davdra, CEO and co-founder at worldwide money transfers companies RationalFX and Xendpay more wholeheartedly agrees with the key points: “As Trump’s protectionism takes centre stage, it is likely that there will be a deviation from investments flowing into the USA to a safer bet, ideally Europe.

“The threat of correctional tariffs against China along with the UK’s appeal of cheap deals driven by a devalued Brexit-pound are all signals that could bring a flurry of investments in the tech sector. The current tensions in the Eurozone have started to adversely affect the investor sentiment in Europe as well, but the safest option at the minute is definitely Europe.”

Yet Lewis of Results International feels “this is probably more of a long-term trend rather than an immediate rocket ship increase”. He says this is because “at the moment what’s key is that Chinese exchange currency constraints greatly hinder near-term, cross-border investment and cross-border strategies. The Chinese government has put in place new Forex exchange controls (when converting Yuan to foreign currency for external purchases/acquisitions) and this means that anything over $5M needs government approval. Moreover, anything above $50m will not get approval because of the depreciation of the Chinese Yuan.

“No one knows when this decision will be reversed – it could be just a few months or as long as a year or more. Yes, there are ways around these rulings including working with a fund outside of China but the fact remains that there are immediate obstacles to the scenario that Magister describe.”

He also reminds us that contrary to popular opinion Asia is not just about China and Japan. “There is hard evidence that shows the emerging economies in the region are increasingly investing overseas. At Results we are seeing more Asian buyers involved in the transactions that we are handling. Yet similarly, in the near term, the scale is still going to be insignificant compared to the investment we will most definitely continue to see coming out of the US and the rest of Europe for the foreseeable future.”

He concludes: “The reality is that, despite Trump and all of the accompanying upheaval, it’s still the US that matters. Yes, we are going to see Asia continue to grow in the long term, but it’s still going to be dwarfed by the amount of capital flowing out of the US. Think of this Asian activity as the cherry on the cake not the cake itself.”

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Kathryn Cave

Editor at IDG Connect

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