There is a surge of interest in emerging Europe across Southeast Asia, including a nearly seven-fold increase in investment from Singapore to more than EUR 600m in 2019.
Irene Ng from CMS Austria looks at why interest in emerging Europe is on the increase.
In terms of the number of investments from Southeast Asia, Singapore was also the leader with 11 deals, more than any of the eight preceding years. Other Southeast Asian countries such as Malaysia and the Philippines also contributed to the capital flow from Southeast Asia into emerging Europe.
One thing that emerging Europe and Southeast Asia have in common is that neither of them is a truly homogenous region. They are both made up of separate countries with distinct cultures, different languages and different ways of doing business.
From an investor’s perspective, there is a clear understanding that although emerging European countries have much in common, there are also many differences, including language, culture, size and stage of economic development.
Finding common ground
Irene Ng said: “There is a recognition that EU membership marks a certain type of divide. Companies that operate in the EU are required to comply with EU laws and regulations, which may also serve as a benchmark for standards in terms of how business is done as well as offering the benefits of certain trade agreements, such as the recent EU-Singapore Free Trade Agreement.”
Emerging Europe is attractive because over the last two decades, the region has been seen as more stable and its economies are maturing. Its proximity to western Europe is useful but is not the overwhelming attraction. Countries in the region are generally viewed as independent markets distinct from western Europe, such as the DACH and the Benelux regions.
One of the reasons prompting investors to look at opportunities around the world, such as in emerging Europe, is the higher potential rate of return on their investments compared with traditional western European markets. In addition to its location, emerging Europe has been helped by exchange rates. Real estate connected with logistics is attracting significant interest, but retail remains attractive, while there is increasing attention on student accommodation. The last five years have also seen Malaysia, the Philippines and Thailand among the ranks of investors in the region’s real estate.
Among the deals announced in 2019, the largest foreign investment in Poland, worth the EUR 1.2bn, was the purchase of the DCT Gdansk container terminal, on a joint bid by PSA International port group, owned by Temasek Holdings of Singapore, the Polish Development Fund, and Australia’s IFM Global Infrastructure Fund. Another major transaction was the EUR 190m purchase of the West Station office complex in Warsaw by Mapletree Investments of Singapore.
Attention turns west
“We have received several enquiries about emerging Europe and interest in the region is picking up,” said Irene Ng. “This interest is quite well spread from sovereign wealth funds, private equity funds and corporates.”
As a large and mature economy, Poland attracts a great deal of interest, but otherwise investment tends to follow sectors. Slovenia attracts investors because of its automotive industry, Bulgaria for fintech and Croatia for hospitality and hotels.
Furthermore, emerging Europe has become more familiar thanks to Korean TV programmes that are filmed in the region and have built up a huge following in southeast Asia. Their popularity has stimulated tourism to countries such as Slovenia and Croatia, and may help to increase awareness among potential investors.
Certain European countries such as the UK have been popular with investors, partly due to the use of English and the legal and regulatory framework. However, the CEE region has been seen as an emerging market, and investors remain interested in making a move into the region despite the unfamiliar regulatory framework. Although EU membership and the use of the euro may provide some confidence to investors, interest in non-EU countries in the CEE region is not insignificant.
The Association of Southeast Asian Nations (ASEAN) acts as an umbrella organisation for its ten member states and has formed a strategic partnership with the EU. In addition, emerging European companies are supported by the Central and Eastern European Chamber of Commerce in Vietnam, which represents 15 countries, and the Central and Eastern European Chamber of Commerce (Singapore), which represents 11 countries.
The forces behind foreign investment from southeast Asia show no signs of weakening and emerging Europe’s attractions are stronger than ever. This formidable combination means that investors will closely watch M&A and other investment opportunities in the region as the cultural and commercial ties between the two regions strengthen.