Why targeting Asia?
ELOA INVEST focuses on the Asian area which has been amongst the fastest growing in the world for the past few years.
Other regions worldwide share such a strong growth potential. However, India and China, representing one third of the world’s population, as well as a booming economy (investments, capital inflows, appreciating exchange rates …) will pull the whole area’s growth much faster and much longer than any other around the world. A short overview of China and India’s main facts clearly shows these giants will lead the whole Asian area and might be the powerhouse of the rest of the world.
China's main facts
According to EIU’s forecast, China is experiencing a sustainable growth. The real GDP growth will remain far above the world / Asian ones over the next years. At the same time, the Consumer Price Index will remain stable close to 4% as the monetary authorities are trying to cool down the economy. While the budget balance is close to equilibrium and Current account balance underlines exports will remain strong.
India's main facts
Although India’s GDP growth should weaken further over the next years, its economy will continue to pace much faster than any other one worldwide. At the same time, the Reserve Bank of India (RBI, the central bank), will use the exchange rate to dampen inflationary pressure. Seeing the chart below, the Consumer Price Index reached a peak in 2006/2007, and should inflect by 2008/2009. At the same time, the strong economic growth helps to limit the federal government’s budget deficit and according to EIU’s forecast, it should fall further below 3% of GDP by 2009. Finally, the gradual liberalization of India’s trade regime will cause the current account deficit to widen slightly in 2008 before an inflection in 2009.
Basically, ELOA INVEST focuses on an area leaded by the world’s two fastest growing major economies : China the biggest contributor to global growth and India, the second-fasted growing economy in the world after China. This strong booming enables the stock market to remain more profitable and dynamic than in any other area across the world. Thus, we expect the IPO market to be lucrative and the pace of new issues to be buoyed. On the other hand, private equity deals will be abundant with strong expected returns particularly within real estate, infrastructure and energy/commodities.
ELOA INVEST’s management team selects for its clients the best deals for public -IPOs, secondary offerings, PIPEs- and private equity deals.
IPOs: Our strategy
Regarding IPOs in China, ELOA INVEST focuses on State Owned Enterprises (SOEs). These IPOs are particularly important for the Chinese government. These mega IPOs (more than US$1bln) usually deal with key sectors (commodities, real estate, banks, energy …) and are clearly observed outside China. Hence, the success of these IPOs is important for the authorities as it enables to maintain a strong appetite for Chinese equities and it is good for Chinese economy and government’s prestige.
Although, ELOA INVEST selects the IPOs, a blind analysis shows that the average performance in Hong Kong (H-Shares) debut was 26% in 2006 (59 IPOs were traded in 2006). And, 53 IPOs were successful; one closed flat while five posted a negative performance. Moreover, the data below clearly show the expected returns bypasses the risks enabling a positive risk/reward ratio.
This movement strengthened during the second half of 2007: the average performance was close to 30% in the debut and 40 companies were listed in Hong Kong (81 IPOs were traded in 2007). ELOA INVEST stresses this movement will continue as the Chinese government is clearly stimulating firms to go public in order to improve company’s transparency, widen market’s depth and Chinese companies need some cash to expand through China and abroad.
Mainly due to the capital control in mainland China, the high saving rate (close to 40% in percent of GDP, one of the highest in the world) and the lack of investment opportunities, the appetite for A-Shares (mainland China, Shanghai) is much more important and the average performance the first day of trading in 2007 has been closed to 105% while the worst performance were close to +30%.
Finally, as our strategy is to pick the best IPOs and to exit the first day of trading, our IPO department delivers strong returns.
In order to deliver stronger returns and diversify risks, ELOA INVEST’s IPO department will target more countries in 2008 and 2009 and will focus more particularly on India and MENA.
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Private equity deals: Our strategy
ELOA INVEST’s strategy is to leverage its different vertical industries and Asian region knowledge in order to achieve winning financial deals.
We are asset and cash flow oriented and our target investment size ranges from $US20mln to $US100mln of direct equity or equity-linked investment. Several important factors that differentiate us from our peers have enabled us to achieve following :
- We are Asia Pacific investment specialists backed by an entrenched relationship network in the region
- Decisions are made locally by on-the-ground executives, ensuring consistent senior focus and interaction
- Our unique structure promotes a usually high-level of adaptability and flexibility enabling us to move quickly and to provide customized financial and strategic solutions for each discrete investment
