Macroeconomic headwinds have built steadily over the course of 2022, with a sense of caution settling into M&A markets. In APAC, aggregate deal value is down more than anywhere else in the world, although is only just behind the Americas.

A major emerging pressure point is China. Since the 2008 global financial crisis, municipal governments in the country have been issuing bonds to bankroll infrastructure projects. This debt—around US$8tn—and related vehicles were coming close to default as of October. Concurrently, default risk is spreading across China’s debt-fueled real estate industry.

Global deceleration

Virtually all major economies are expected to shed growth momentum over the next 12 months, and APAC countries are no exception. The war in Ukraine has prompted commodity price rises, fanning inflationary risks. The International Monetary Fund (IMF) is predicting 5.7% inflation in advanced economies and 8.7% in emerging market and developing economies. In APAC, this is being felt most acutely in India and parts of Southeast Asia, as well as Australia & New Zealand.

Most central banks are tightening monetary policy to bring prices under control, even amid slowing growth. China and Japan are exceptions. The People’s Bank of China has been easing its policy to lessen the debt burden, but is having to tread carefully as the renminbi weakens in response.

This is a challenging environment for dealmakers to navigate, and it may take time for conditions to stabilize and M&A to pick back up again. One thing is certain, a repeat of 2021’s dealmaking bonanza will not be seen again in a hurry—possibly ever.

Published in association with Datasite, Deal Drivers APAC provides an in-depth review of M&A activity in 2022, as well as a look ahead to 2023.

The report is also available on datasite.com.