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China's tech woes make the appeal of emerging Asia more obvious

India and Southeast Asia getting a boost from investors hungry for exposure

India’s biggest fintech company, Paytm, though losing money, is about to complete the biggest equity listing in the country’s history.    © Reuters

SINGAPORE -- India and Southeast Asia's technology sectors top the charts when tabling the biggest beneficiaries of an investor shift away from China's technology sector this year.

India's technology boom has been well documented. But there are signs even Southeast Asia is getting a boost from investors hungry for exposure to emerging Asia while Beijing authorities continue to clamp down on Big Tech.

Consider the skyrocketing share price this week of Society Pass, the first Vietnamese company to list on Nasdaq. The company, which describes itself as a "data-driven loyalty platform," acknowledged it was facing lawsuits in its prospectus, but investors did not seem to mind. Shares rose more than 400% on debut.

While admittedly an outlier, the interest in a small Vietnamese tech company captures the mood and rising enthusiasm Western investors have for the fast-growing region of 655 million people. Another, stronger example is Sea, the owner of e-commerce platform Shopee and gaming business Garena, whose share price has risen 70% this year, at one point touching a $200 billion valuation.

The main reasons for this exuberance are obvious. Southeast Asia shares many of the same factors that make India so tantalizing for investment, namely a young population rapidly digitizing thanks to smartphones.

However, there are several important questions to ask about the boom in both regions' tech markets.

The first crucial question is how much of the investor interest is due to what is happening with the crackdown on the tech sector in mainland China this past year, or whether Southeast Asia and India's moment was coming regardless of Beijing authorities' clampdown.

According to an analysis from the Asian Venture Capital Journal, investment in Asia reached $71.6 billion in the third quarter of 2021, half of which was deployed in the tech sector. But the growth wasn't thanks to China, where early and growth-stage investment slumped by more than 40% on the previous quarter.

Instead, India and Southeast Asia made up the shortfall, as each market saw early and growth-stage activity in the sector surging to record levels. India was a particular standout, with investment rising from $12.9 billion to $18.8 billion, according to AVCJ's quarterly report, shattering the previous all-time high set in 2020 when Reliance Industries-owned Jio closed its mega-round. Early and growth-stage technology investment climbed from $8.1 billion to $12.5 billion, making up two-thirds of the overall total.

Most analysts believe the rise of Southeast Asia and India's tech sectors was already happening, and China's situation just gave them an extra, somewhat earlier push.

This makes the second question important. To what degree are Indian and Southeast Asian technology startups now starting to look like they are in bubble territory or overvalued for the amount of cash they burn?

India's biggest fintech company, Paytm, which is loss-making, is about to complete the biggest equity listing in the country's history. But it has attracted skepticism for its $20 billion valuation.

Meanwhile, the furious speed at which Indian startups are exceeding a valuation of more than $1 billion is also alarming some market observers. One company, Apna, this year become a unicorn in less than two years despite having no revenue.

There are signs of similar trends in Southeast Asia. The initial public offering of Bukalapak, the Indonesian e-commerce marketplace, is one example. Bukalapak, also loss-making, upsized its offering several times from $300 million to $1.5 billion in August ahead of listing on the Jakarta Stock Exchange.

Some bankers were scratching their heads over why a company that was not the top or even second-top e-commerce player in Indonesia garnered so much interest -- with many wondering privately if it was connected to investors needing an alternative to China.

Bukalapak's share price has drifted back down toward earth since the IPO and is trading below its first-day trading price and its issue price.

Other market players have questioned the $40 billion valuation of Grab, a ride-hailing, fintech and delivery company headquartered in Singapore seeking to list in New York next month.

That said, there is huge room for further growth by Indian and Southeast Asian startups. Internet penetration is still extremely low, particularly when it comes to accessing financial services. There is not much evidence investors are balking at the steep valuations and standing back.

If China's regulatory assault on its tech companies eases, this might take some of the heat out of Southeast Asia and India next year. But it would be a mistake to assume uncertainty in China alone is creating the increased interest -- the mainland's tech woes have simply made the appeal of other regions in Asia more obvious.

Mercedes Ruehl is the Financial Times' Asia Tech reporter based in Singapore. She writes about technology and investment in Asia, from startups and entrepreneurs to the region's biggest companies.

She previously led the Financial Times' newsletters and audience engagement team in Asia. Before that, she spent six years reporting in Australia on business, finance and politics for The Australian Financial Review and The Sydney Morning Herald.

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