Japan PE shows resilience amid monetary shift
Japan's private equity market aims to overcome the disruption caused by the Bank of Japan's shift to positive interest rates and the yen's recovery following its unusually low valuation against the US dollar.
“We expect that, in the absence of very drastic movements, investors would continue to consider Japan exposure favourably in their private equity portfolios,” Angela Lai, head of Asia Pacific and valuations at Preqin research insights, told AsianInvestor.
The private markets data provider suggests that a significant short-term reversal could affect the appetite for Japanese private capital investments, given that the low yen and relatively low interest rates have been attracting foreign investors.
“However, we should also point out that Japan buyouts have historically provided decent returns at relatively lower risks, even when the yen was much stronger against the US dollar, and these are positive attributes that appeal to investors in a risk-off environment,” Lai said.
Also read: Japan’s PE market shows resilience amid global decline
The exit environment in Japan has remained relatively stable, with some positive trends in asset valuations. This supports better liquidity for private capital investors compared to other markets, she added.
Asia-Pacific private equity buyout deal value rose to $16.3 billion in Q2 2024, from $8.3 billion in Q1 2024, according to Preqin's quarterly update report for the region.
Notably, Japan's share of buyout deal-making volume increased to around 30% in Q2 2024, nearly a 10-percentage-point rise from its five-year average of 22%, making it currently the most active buyout market in APAC by volume.
INDIA’S GROWTH SPURT
Buyout activity in Asia Pacific rose slightly in Q2 2024 from Q1, with total deals rising from 210 to 223 and aggregate deal value rising from $8.3 billion to $16.3 billion, respectively.
The Q2 rebound for private equity buyout deals was led by the Indian market, with India-focused deals accounting for the highest share of total deal value at 24%.
The Indian market has attracted more investors across asset classes in both public and private spaces in recent years, Lai noted. The positive economic outlook has pushed its public equity markets to new heights following a successful year for IPOs in 2023.
Also read: Appeal of India's private markets rising among asset owners
“This is positive for private capital as deeper capital markets can provide better support throughout the investment cycle, which is often a key challenge for younger markets,” Lai said.
The Indian market's appeal stems from the diversity of opportunities across sectors, as well as supportive demographics such as increasing wealth and an expanding working population.
REMEMBER CHINA
When it comes to other noteworthy private equity markets in the region, Lai pointed out that China should still be considered.
“China remains a heavy weight in the region even though it is currently seeing softer investor sentiment, so let’s not forget the potential there as it is still the largest economy in the region,” Lai said.
Beyond India and Japan, other markets in the region are also seeing considerable transaction activity, and the Korean market has some advantages working in its favour.
“We see that Australia and South Korea are maintaining solid shares in the region’s activity, in particular Korea has been attracting more attention with their innovative businesses as well as deep-tech capabilities. In addition to private capital funds, corporate investment is another key driver of Korea deal flow,” Lai said.
The technology and IT sector in particular will be a trend worth watching for private equity activity, as it continues to make up the largest share of deal flow, according to Preqin.
“In the recent year, some of the largest deals were related to the semiconductors sector across Asia-Pacific countries, highlighting opportunities in the ongoing technology race. Many of these [are] involving the participation of government capital as well,” Lai said.