- Good afternoon, Aliya, thank you for your time. This is an interesting topic. As a starting point, could you please talk about Southeast Asian region and its features.

-    Good afternoon! Yes, of course. Southeast Asia is an important strategic region and a trading partner that plays a key role in the development of the world economy and geopolitics. It is worth reminding that the Association of Southeast Asian Nations (ASEAN) was formed in 1967 in Bangkok. Initially, Malaysia, Indonesia, Thailand, the Philippines, and Singapore joined ASEAN. Later, other countries joined the Association – Laos, Brunei Darussalam, Cambodia, Vietnam and Myanmar. It is worth noting that the current share of the population living on the territory of ASEAN is about 9% of the total world population. At the end of 2021, the population in the region reached about 633 million people and almost 1.5-2 times exceeded the number of people living in the European Union (447 million) and the United States (332 million).

In terms of economic growth, the Southeast Asia region is one of the fastest growing in the world and is outpacing global economic growth. It is expected that in 2022 and 2023, the real GDP growth of ASEAN will be about 5.7% and 4.6%, respectively. In comparison, over the same period, real world GDP growth will reach 3.4% and 2.8%, respectively. The accelerated development of ASEAN is mainly due to attractive economic growth indicators in Vietnam, Thailand, Malaysia, Indonesia and the Philippines, where there is a steady growth in consumer demand, exports and recovery in activity in the services and tourism sectors. It should be noted that ASEAN accounts for 3.5% of global GDP.

In general, Southeast Asia is characterized by relative macroeconomic stability, is one of the world's largest exporters and a center of global foreign direct investments. Thus, the region accounts for 7.8% of world trade and 10% of the global share of foreign direct investment. It is worth noting that the specialization of each of the ASEAN countries is a certain category of industry. For example, the financial services, pharmaceuticals, semiconductors and breakthrough technologies industries are actively developing in Singapore. Malaysia is also a major exporter of petroleum products, natural gas, finished car chips, textiles and palm oil. Meanwhile, Vietnam has transformed itself into a manufacturing center, and also exports consumer electronics and semiconductors to world markets. In addition, Vietnam, along with Thailand, are experiencing a tourist boom, which ensures greater stability of the economies of these countries. On the other hand, Indonesia is the world's largest exporter of palm oil, the second largest exporter of coal and the largest supplier of steel products. In addition, the country has seen an increase in investments in the production and supply of raw materials, in particular in the nickel industry. It is worth noting that in 2021, nickel production in Indonesia accounted for 37% of world production, while the country has about 22% of the world's nickel reserves.

In recent years, China has strengthened cooperation with ASEAN countries and remains a key trade and economic partner of ASEAN countries. It is worth noting that China and the member countries of ASEAN largely complement each other in certain sectors of the economy and have great potential for further cooperation. There is also a growing influence of China in relation to the ASEAN economy. In less than 15 years, China has surpassed the United States in terms of imports from ASEAN, while China's share in the ASEAN's total exports has grown on average from 9% in 2007 to 16% in 2022. Meanwhile, the volume of foreign direct investment inflows to China ($273 billion) exceeds the same figure in ASEAN ($174 billion) according to the latest data for the end of 2021. Nevertheless, ASEAN is an alternative center for foreign direct investment among developing regions, second only to China. ASEAN is expected to play an important role in the global economic recovery.

- Can you tell us what are the advantages of investing in Southeast Asia in the current market conditions and can you describe the trends in the region?

-   As we can see today, macroeconomic and geopolitical factors have a significant impact on global markets and global economic growth. Despite the negative external factors and volatility in the markets, the investment potential of ASEAN is high. In general, the main drivers of economic growth in the Asian region are the growth of private consumption, tourism, an increase in the middle class, as well as accelerated urbanization of the region. According to the consulting firm McKinsey & Company, consumption market in Asian markets are expected to grow by $10 trillion over the next decade. It is noteworthy that in 2000, only 15% of the Asian population, or about 530 million people, belonged to the so-called "consumer class", since the main population of the region had low purchasing power. However, by 2030, 3 billion people, or 70% of the entire Asian population, may join the above class. Currently, the size of the consumer market in ASEAN is $1.2 trillion, which exceeds the volume of the consumer markets of India ($938 billion) and South Korea ($590 billion). It is worth noting that the middle class in ASEAN is a high-income population group with its own social, cultural and economic characteristics.

In summary, it is possible to identify structural industries with highly attractive trends in the region – production centers, infrastructure, digital technologies, artificial intelligence, the energy sector and agro–industrial system using renewable energy sources and breakthrough industries with high value added potential - which will become the basis for the economic growth of the region and provide the countries of ASEAN with opportunities to attract investment.

- What is the main role of the Southeast Asian region when investing in alternative instruments?</h1>

- The Asia-Pacific region accounts for more than a quarter of the global direct investments market. At the same time, the number of transactions among all countries in the Asia-Pacific region remained at the highest level in Southeast Asia. In particular, Singapore, Indonesia and Vietnam saw an increase in the total deal value and number of transactions in sectors such as e-commerce, logistics and technology. The investment attractiveness of the region is explained by the development of digital technologies, population growth and private consumption.

It is important to note that in the Asia-Pacific region, fund managers mainly specialize in the Growth Equity strategy. In the range of strategies of private equity funds at the stage of development of portfolio companies, this strategy is between late stage Venture Capital (VC) and Leveraged Buyouts (LBOs). Funds of this strategy, as a rule, acquire minority stakes in relatively mature companies that have passed the venture stage and use capital for the purpose of expanding or restructuring activities, entering new markets or financing large acquisitions without changing control. The total share of transactions under the Growth Equity strategy in Southeast Asia was 63% in 2022.

The target sectors of private equity funds in Southeast Asia are the traditional sectors of the digital economy – e‑commerce, transport, online travel, media and social networks, as well as online payments and financial services. Additionally, new industries are noted – healthtech and edtech, software as a service. It is expected that the growth rate of the digital economy will average 20% in the next three years, and the total market volume will increase from $200 billion in 2022 to $330 billion in 2025.

It is worth noting that the Venture Capital also plays a key role in the Asia-Pacific region. The number of "unicorns" - startups valued at more than $1 billion – has quadrupled over the past five years in the region. Thus, in 2021, the Asia-Pacific region accounted for over 50% of the total number of "unicorns" in the world. It should be noted that the share of Southeast Asia in the total volume of transactions in the VC in the Asia-Pacific region increased from 4% in 2016 to 14% in 2022. More than 80% of venture funds will specialize in investments in new industries.

In addition to the investment potential, there is high activity in the M&A in Southeast Asia. The share of completed M&A transactions has reached about 56% of the total number of transactions in the region. For example, the total volume of transactions in Indonesia is twice as high as in China.

- What are the main risks of investing in the region?

- The decline in global demand, the decline in tourism and the volatility of prices for various types of commodities may affect the economic growth rates of Southeast Asian countries in the short term. Sustained global inflation and high interest rates may reduce consumer demand, particularly for the discretionary sectors that underpin the digital economy. It should also be noted that there is a wide dispersion in the economic development of the countries in the region. Thus, Cambodia's GDP per capita in 2021 was only $1,625, while in Singapore it was $72,795. In addition, ASEAN exports largely depend on consumer demand from its main trading partner, China. Therefore, in order to strengthen its position in the global economy, ASEAN is expanding economic ties with important strategic partners.

As part of the economic partnership, ASEAN members work closely with other Asian countries. Thus, in 2020, 15 countries of the Asia-Pacific region – 10 ASEAN member countries and Australia, China, Japan, New Zealand and South Korea – signed a free trade agreement entitled the Regional Comprehensive Economic Partnership (RCEP). It is expected that the trade agreement can contribute to the global economy and contributes to an annual increase in global GDP by $200 billion by 2030.

In the long-term horizon, ASEAN can become a logistics center and allow countries to diversify supply chains. Foreign direct investments in the region has almost doubled over the past 10 years, due to the availability of raw materials, investment incentives, the availability of skilled workers and trade agreements.

In summary, the ASEAN population of more than 600 million people and the growing level of income support the sustainable economic growth of the region. Investments in economic development and sustainable growth of available income of the population of ASEAN countries will stimulate active domestic consumption. Escalation of geopolitical tensions, increase in labor costs in China and disruption of domestic supply chains are contributing to the fact that Southeast Asia will become an important node in the global supply chain and production.

- Aliya, thank you for an interesting conversation. I wish you success in your work!