Asia’s Emerging Markets

:
Opportunities for Investment

Ta-lin Hsu H&Q Asia Pacific
May 6, 2007

Disclaimer: The views expressed in this presentation are the views of the speaker and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms

H&Q Asia Pacific
Migrated Silicon Valley-style VC to Asia in 1985 One of the earliest private equity firms primarily focused on investing in Asia Superior performance over 22 years investing through several financial cycles in emerging Asian markets Strong local presence with 34 experienced local investment professionals in 8 regional offices Over $2.2 billion under management in over 362 companies since inception
Shanghai Hong Kong Taipei Seoul Tokyo

Silicon Valley

Manila

Singapore

Venture Capital / Private Equity in Asia

Venture Capital
Angel Seed Early Stage Start-Up Growth Capital

Growth Expansion
Expansion

Buyout

Late Stage pre-IPO

LBO Public to Private Control Stake

Asia’s Emerging Markets
E.g. People’s Republic of China (PRC) India Southeast Asia

Asia’s Developed Countries
E.g. Japan South Korea

Benefits of Venture Capital to Background Emerging Markets
Develops industries, creating new jobs and opportunities Encourages entrepreneurship and innovation Repatriates talent and reverses the country’s “Brain Drain” Accelerates R&D Increases financial and economic linkage to the rest of the world Upgrades emerging market economies

Background Global Impact of PRC & India

Rise of PRC and India
Size of economy can influence the global markets Both economies in an upswing cycle, driving lots of private equity capital to Asia

Global impact on other Emerging Markets
Foreign Direct Investment (FDI)
Short-term: Significant drain of FDI away from other emerging markets Long-term benefits: More capital into the region means positive spillover to other emerging market countries

Trade and Economic Growth
PRC and India’s emergence as dominant trading partners to the rest of Asia reduces the region’s dependence on the U.S. and Europe Increasing trade liberalization policies Helps promote regional economic integration Reduce economic gaps in the region

Background Opportunities for Investment

Cross-border migration of leading technology, brands and management teams from more developed countries into emerging markets, taking advantage of the positives while minimizing some of the risks
Positives: low-cost labor, manufacturing and R&D, and ready-made markets Risks: VC learning curve with local entrepreneurs, IP ownership and protection issues, lack of transparency

Leveraging valuation differences between stock markets Other than the obvious high-technology and consumer sectors, opportunities for socially responsible investing exist in
Clean technology Pharmaceuticals and medical devices (e.g. to develop cheaper medicine and therapeutics for the treatment of AIDs and HIV)

Sectors that have a larger and lasting impact on emerging markets beyond just profits

Conclusion Background
Venture capital and private equity are important to all markets, in particular the emerging markets, as the primary means of financing innovation to help develop and grow the economies Due to sheer size and impact of PRC and India’s economies, the long-term spillover effect will help bring the other emerging market economies to the forefront and leave an imprint for years to come Venture capital investments can have far-reaching environmental and social impact on emerging market countries, beyond just its effect on the economy

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