HONG KONG, June 20 (Reuters) - Dealmaking in Southeast Asia and private equity transactions should help lift Asian mergers and acquisitions (M&A) activity in the second half of the year, bankers said, after deals volume in the first half slumped to the lowest in a decade.
Total Asia M&A value for January through June dropped 41% year on year to reach $362 billion, the lowest since 2013, preliminary data from Refinitiv showed.
The decline was roughly in line with the rest of the world, as higher interest rates, volatile markets and geopolitical tensions weighed on dealmaking globally, causing a number of Wall Street banks to cut jobs over the past year.
In Asia, the slump in activity has been driven by a sharp drop in China-related dealmaking due to deteriorating Sino-U.S. relations and a slower-than-expected recovery in the world's second-largest economy.
Bankers in the region have so far earned a total of $1.4 billion in fees from completed M&A deals, down 44% year on year and also a decade low, the data showed.
Choe Tse Wei, managing director of strategic advisory at Singapore's DBS Group, said geopolitical ructions had led to shifts in Chinese outbound investment away from Western Europe, Australia and North America toward Southeast Asia and other emerging markets, while hitting investments into China.
"It has directed some Western flows of FDI (foreign direct investment) into India and Southeast Asia, while increasing domestic reinvestment through re-shoring and near-shoring of production facilities," Choe added.
Deals involving Chinese companies dropped 35% year on year to $125.4 billion in the first half, also a decade low, Refinitiv data showed. Outbound M&A, at $7 billion, plunged by a third to the lowest since 2006.
Investment bankers said deals momentum in Southeast Asia has been picking up as a number of sectors in local markets are going through consolidation.
"Southeast Asia activity is still being driven by domestic consolidation in sectors such as financial institutions and TMT (technology, media, telecoms)," said Rohit Chatterji, co-head of M&A, Asia Pacific, at JPMorgan.
Southeast Asia was the source of the largest Asia Pacific M&A transaction this year, Refinitiv data showed.
Vietnamese electric automaker VinFast said in May it would list in the United States via a merger with special purpose acquisition company (SPAC) Black Spade Acquisition Co which would give it an equity value of $23 billion.
Multinationals reshaping their strategy, particularly in oil and gas, and deciding to consolidate or exit certain assets in favour of national champions could also drive deals in Southeast Asia, said Chatterji.
Sizeable deals in Asia's pipeline include a sale of Fujitsu's $2.7 billion controlling stake in Shinko Electric Industries, a stake sale of India’s Kotak Mahindra Bank's general insurance company and a sale of a stake in Asia-focused Edotco group in Malaysia.
Private equity (PE) firms are also expected to gradually come back into action, bankers said. PE-backed deals totalled $53 billion in the first half, down 37% year on year, the Refinitiv data showed.
Despite fundraising challenges, they still sit on $417 billion worth of dry powder, or deployable capital, in the region as of this month, the highest ever, according to Preqin data.
Overall, strategic activity, asset sales by private equity firms and take-private deals will continue to gain momentum in the second half, said Raghav Maliah, global vice chairman of investment banking at Goldman Sachs. (Reporting by Kane Wu in Hong Kong and Yantoultra Ngui in Singapore; additional reporting by Vineet Sachdev in Bengaluru; Editing by Sumeet Chatterjee and Sonali Paul)