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Hunting unicorns in Asia

Hunting unicorns in Asia

If a sign was needed that a torch has been passed in the tech industry, it came last week as web pioneer Yahoo! agreed to sell off its internet business. Days earlier, shares in Google’s parent company Alphabet passed $1,000. In late May, Amazon’s did the same.

With even Google and Amazon now looking venerable, investors worldwide looking for the next round of ‘unicorns’ – venture capital-backed companies that reach a $1 billion valuation – are increasingly casting their eyes to Asia, where large, tech-savvy populations are willing consumers of next-generation services.

China, with a population of 1.4 billion people and 700 million internet users, offers a rich market for companies in e-commerce, payments, food delivery, bike sharing and other travel-related services, according to Mansfield Mok, who manages EFG Asset Management’s New Capital China Equity fund. Mok also likes some of the hardware firms, including HikeVision and TravelSky.

Chinese companies are investing heavily in research and development, enabled by a large cohort of engineering graduates, Mok said.

Proximity to good educational institutions is a good indicator for investors in tech, according to James Cheo, investment strategist at Bank of Singapore.

‘Silicon Valley is close to Stanford University. So it provides a good incubation environment with strong research and technology networks,’ he said.

Southeast Asia

The fast-growing markets of Southeast Asia could also be a good hunting ground for unicorns, analysts said. An explosion in e-commerce and ride-sharing services, modelled on US giants, has produced 10 billion dollar businesses in the region, according Joonshik Wang, ASEAN transaction leader for technology, media and telecoms at Ernst & Young.

‘The current business models that unicorns have adopted are quite similar to those in the US – such as focusing on e-commerce and sharing economy – and I expect this trend to last for two to three years,’ Wang said, adding that companies will have to localise their business models to succeed in the long-term.

Indonesia, the region’s largest economy, attracts around 50% of venture capital funds in the region, and accounts for half of its unicorns. Rainer Michael Preiss, executive director of client investments at Taurus family office, said that Go-Jek, a hyperlocal transport, logistics and payment startup could be a name to watch there.

Sector plays

Tech giants have been snapping up artificial intelligence companies, with 2016 a record year for investments and acquisitions. Venture capital investment into AI hit $4.1 billionlast year, according to research from Nomura Instinet.

Sylvie Sejournet, senior investment manager, Pictet-digital at Pictet Asset Management, said that she expects the sector to experience a 5-year compound annual growth rate of more than 70%, but warns that it could be difficult to get access to the trend.

‘There are not many listed AI pure plays at the moment,’ she said. ‘Investors who would like a piece of the AI investment opportunity will likely have to gain exposure via listed tech giants.’

Chinese giants Tencent, Alibaba and Baidu have all been investing in AI, from chatbots to facial recognition, joining US giants Facebook, Amazon, Google and Apple.

‘Over the five past years, Google made 11 major acquisitions… Apple made five major acquisitions,’ Sejournet said. ‘The fact that these tech giants are snapping up AI startups in such breakneck manner is telling.’

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