Asia's edge isn't just cheap labor, whether it's China, India or Japan, KKR says
BEIJING — Asia's competitive advantage was once cheap labor. Now, whether it's China, India or Japan, the region's edge lies in industrial services, KKR's heads of global and Asia macro said in an October note.
That includes logistics, waste management and data centers, the private equity giant said. «We think that there is both internal demand and an external component to this story.»
That investment conclusion comes after a recent trip to Singapore, China and Japan by New York-based Henry H. McVey, chief investment officer of KKR Balance Sheet. He is also KKR's head of global macro and asset allocation. Singapore-based Frances Lim, managing director and head of Asia macro and asset allocation, also made the trip.
«The bid for infrastructure and logistics could accelerate even more meaningfully, we believe, in key markets such as India, China, Indonesia, the Philippines, Vietnam and even Japan,» the KKR report said.
About 20% of KKR's balance sheet is allocated to Asia, a region that's undergoing a longer-term shift requiring more fixed investment, the report said.
While the firm doesn't break out allocations by country, some of its biggest announced deals in the last two years have been in Japan. That includes a $2 billion acquisition of a Mitsubishi-backed real estate manager in spring 2022.
«I think there are two big megathemes in Japan,» KKR's McVey said in an interview Thursday. «One is this automation and industrialization, there's a true capex cycle that's going on in Japan that we haven't seen in some time.»
He pointed to Japanese Prime Minister Fumio Kishida's speech in New York last month, which noted domestic investment is set to break records with more than 100 trillion yen ($673.58 billion) this year.
«If that creates productivity, it's going to allow them to drive wage increases which is something we haven't had for some time,» McVey said. He expects Japan is exiting deflation.
The other big trend in Japan, McVey said, is corporate reform that's boosting shareholder returns.
After decades of sluggish growth, Japan has become a hot spot for international investors this year, against a backdrop of uncertainty about China. In April, U.S. billionaire
