Emerging Southeast Asian economies Myanmar and Cambodia were among the top five markets in Asia-Pacific with the largest percentage of private equity and venture capital backing in the private sector.
Myanmar led the pack with the highest penetration rate of private equity, at 5.95% as of Sept. 8. Cambodia was third with 4.74%, according to data from S&P Global Market Intelligence.
The private equity penetration rate measures the percentage of total private companies in a market that have private equity or venture capital investment. A higher percentage implies a more attractive risk/reward proposition. In developed economies, it suggests conditions that support business growth, such as level of entrepreneurship and innovation, GDP growth, and commercial maturity.
Henry Lam, associate vice president for research insights at Preqin, said Myanmar and Cambodia are developing countries with more potential GDP growth in the future than their more developed peers across the region.
"Compared to other developed or major economy in [Asia-Pacific], there is still a great room for the banking and capital market infrastructure of these two countries to emerge. Therefore, venture capital and private equity financing becomes an important financing source for private companies seeking expansion. That creates investment opportunities for private equity market players," Lam told Market Intelligence in an email.
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Asian giants South Korea, mainland China and Japan rounded out the top five in terms of private equity penetration at 5.9%, 4.38% and 3.77%, respectively.
The 21 select markets across Asia-Pacific had an aggregate penetration rate of 3.39%, compared to the EU with 0.49% and the UK with 0.35%.
Luke Pais, Asia-Pacific private equity leader at EY, said mainland China has been the top destination of private equity in Asia-Pacific in terms of deal value and volume due to the size and scale of the market. However, investors have taken a pause as they await the market to normalize.
"There's been things happening at the geopolitical level. At the same time, last year, [mainland] China had the COVID-19 restrictions, there was a limitation on travel," Pais told Market Intelligence in an interview. "[Those factors] caused people to take a pause, right, to look at how things will stabilize."
Mainland China still needs to undergo an economic transition before its economic growth can pick up again.
"Considering the weakened economic growth in [mainland] China may persist during the economic transition, the number of private companies would lose the momentum to grow. Private equity penetration could reduce in just a mild manner as a result," Lam said.
Most attractive investment sectors
Technology, media and telecommunications (TMT) is the most invested sector across Asia-Pacific when it comes to private equity backing.
As of Sept. 8, there were 29,227 private TMT companies that are backed by private equity. The consumer sector came in next with 12,829 companies, Market Intelligence data shows.
