Every trade dispute cloud brings with it a silver lining and investment opportunities with private equity companies on an Asian spending spree. Private equity houses Warburg Pincus, KKR and TPG all have made large investments in Indonesia and Vietnam, while Morgan Stanley Private Equity Asia raised more than US$440m for a Thailand-focused fund.
As Michael J. Ferrantino, Lead Economist and Global Product Specialist for Trade Policy and Integration at the World Bank, says: “If disputes continue, other developing countries, including India, may benefit from some diversion of foreign investment away from China.”
India is what China once was, a cost-effective manufacturing base with direct access to a growing middle-class market. As such, it is already attracting attention. During 2018, for example, retailer Walmart spent US$16bn to buy a stake in Flipkart, India's largest online retailer.
US companies have cash to splash
“The trade dispute has resulted in a slowdown in the US acquisition of companies manufacturing in China,” explains Lynlee Brown, a senior manager in the global trade practice at Ernst & Young LLP in San Diego. Although she adds: “The flip side is US tax reform.”
The tax reforms of 2018 left many US companies flush with cash that should help support the deal market in 2019. This might explain why US spending on foreign acquisitions was at an all-time high of US$30.1bn, three weeks into January — just not in China, according to Refinitiv’s data.
Mostly, though, US firms are spending at home with domestic mergers and acquisitions up by 41% in the first three weeks of this year compared with the same period last year. These figures are aided by Bristol-Myers Squibb’s planned US$74bn acquisition of pharmaceuticals rival Celgene Corp. However, the 2019 EY Trade Survey suggests this trend is set to continue, with 60% of companies reporting that they would pursue M&A inside the US.