Here’s what small caps need to know before trying to tap investors in Asia
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For small caps seeking to go abroad, Asia is a logical place — it contains nearly 60 per cent of the world’s population, multiple financial hubs and as middle classes rise so does potential capital.
But it’s easier said than done, and that is even before the coronavirus hit.
Stockhead visited Singapore earlier this week and met with three different locals in the industry to get their perspective on how to break into the region.
While there is a lot more to the Asia Pacific region than just Singapore, the Lion City is one of the world’s biggest financial hubs, ranking 4th best in the Global Financial Centres Index behind New York, London and Hong Kong.
First, we met with head of marketing at Spark Plus, Jared Sim. Spark Plus runs roadshows around the Asia Pacific region for listed companies.
It specialises in one-on-one meetings with investors it thinks will be a good fit for the company, although companies have to do their part to win investors over.
“A strong team sells half the story,” he said,” But it’s also important to get the message clear – execution is a problem.
“You need to tell what makes you different. It might be hard to raise money if it’s not the case.”
One sector Australia offers exposure to that Singapore and some other Asian markets don’t is healthcare. Sim says this has appeal to investors, but it is a longer term story.
“Healthcare may have momentum in Asia but it is a longer term view. Some [investors] may think it is too long. But it’s safer if it [the drug] is in phase two or three.”
Next Stockhead met with a Singaporean high net worth fund manager who did not want to be named. He said individual investors in Asia were a different breed to those in Australia.
“Asian investors tend to be more conservative. There are two types: first, businesspeople who are business savvy but not necessarily market savvy and second, professionals such as lawyers,” he explained.
“They tend to hold 30 per cent [of their wealth] in cash and 30 to 40 per cent in property. That leaves just another 30 per cent to invest.”
The fund manager said the issues for the Australian small caps were around awareness and consistent communications. He argued that if investment propositions were too complicated, either the business itself or the ease of investing in it, Asian investors wouldn’t inject the capital.
He also warned of two things investors had become aware of. Firstly, that company valuations had become too high, and that the WeWork debacle and the market fall was a strong reminder to local investors.
Secondly, it is getting tougher for Asian investors in the West. He pointed to America’s FATCA laws as an example.
“Chinese [investors] rushed to get Green Cards but didn’t realise that under US tax law they are also taxed for assets in China,” he said.
Under these laws, Green Card holders (US permanent residents) as well as citizens are taxed on all their income worldwide even if they do not live in the US.
Often investment is a means to enter the Asia Pacific region, or small caps may be cashed up enough to enter the market. Stockhead also met with James Merritt, chief executive Asia at Isentia (ASX:ISD).
iSentia, which offers media monitoring and data intelligence services was founded in Australia back in 1982. Although it is still listed on the ASX, it now thinks of itself as a global company.
Although Merritt only joined iSentia last year, he has been an expat in the region for over a decade.
The company serves clients all over the world in the commercial sector as well as in the government sector.
“Australia and New Zealand was where we were founded and we take that seriously,” Merritt told Stockhead.
“But when you have a mobile platform you can service the world.
“Asia has lots of cultures, economies and political systems, so you need to focus.”
But Merritt argues that businesses in the fast growing region need his company’s services.
“Big companies are dependant on overseas — what the media is focusing on now. It can guide your business,” he explained.
“If you ask anyone, ‘are you interested in what is happening in the world’, the answer is usually yes.”
Additionally, he says Singapore is good as a regional headquarters for companies. This is due to the timezone overlap with Australia and Europe, its accessibility and the fact it’s business friendly.