Low vaccination rates and the surge of the delta variant has caused a decline in various Southeast Asian financial markets. Even in an Asian stock market that lags behind global peers, ASEAN shares stand out for their underperformance. According to Bloomberg, the MSCI Asean Index fell more than 5% this year, compared to an estimated 0.2% rise in the regional benchmark MSCI Asia Pacific Index.
Persistent Covid-19 pandemic waves have also led to postponed reopenings and reinstated regulations, increasing economic costs and damage to businesses. Many ASEAN markets are likely to continue suffering until the herd immunity threshold required to slow infection rates is reached.
Despite this, Covid-19 has ignited Southeast Asia’s digital adoption rate. Over the past year, consumers had no choice but to turn to online avenues for shopping, financial transactions, entertainment, studying, etc. Thus, it is likely that people will continue to rely on digital services in the future.
Southeast Asia’s Digital Economy
As a result, more and more investors recognise Southeast Asia’s value as one of the last digital economy opportunities in the world with high growth potential. Southeast Asia is currently home to 16 “Unicorns”, tech companies with a valuation of at least US$1 billion. These range from app operators such as Singapore-based SEA Group and Grab as well as Indonesia’s Gojek to payment companies like VNPay and OVO, which are headquartered in Hanoi and Jakarta, respectively. A significant deal this year was the merger between Indonesian ride-sharing firm Gojek and e-commerce company Tokopedia, creating a combined entity, GoTo, that is worth more than US$18 billion. Other companies such as Grab are also aiming for an IPO later this year with a proposed valuation of nearly $40 billion.
As more consumers and businesses digitise, the value of Southeast Asia’s digital economy is expected to grow threefold to $300 billion by 2025, despite challenging environments caused by Covid-19. This is because both firms and consumers have already gone through digital adoption, such as setting up online transactions and digital workplace systems. Therefore, continuing to use these platforms will only become much more accessible and convenient. Consequently, this increase in digital activity across various sectors will incentivise further capital investments and drive ASEAN’s growth in the post-pandemic era.
China’s Regulation Crackdown
Another driver for tech companies’ growth in Southeast Asia may have arisen from regulator crackdowns on several major Chinese tech firms, resulting in a sharp stock sell-off in sectors such as property and education. Hence, many are viewing Southeast Asia as a haven for investors looking to invest in the tech sector in Asia. This is because Southeast Asia is relatively shielded from the United States-China trade tension, possessing a robust consumer activity and economic growth potential. Yet, even though China continues its corporate crackdown on tech firms, it does not necessarily mean investors will shift completely from China to ASEAN as Chinese tech companies are valued highly for their growth opportunities even amidst regulatory concerns.
From another perspective, Southeast Asia and its fast-growing digital markets might become a battleground for tech giants of both the United States and China. Amazon, Microsoft, Google, and Alibaba Group Holdings, among others, are investing heavily in cloud computing services in ASEAN.
For instance, Facebook’s first custom-built data centre in Asia will be located in Singapore. The company has announced it will invest $1.4 billion SGD in the project. With a stable political system, an abundance of skilled workers and connection to undersea cables that link to various parts of the globe, Singapore has become a prime spot for tech giants who want to acquire market share in Southeast Asia’s growing cloud services market. Coincidentally, Singapore is also a strategic foothold for Chinese tech companies such as Alibaba and Tencent, which are competing for the same clients.
In China, Alibaba and Tencent have thrived due to restrictions imposed on foreign tech companies. However, expanding in the West proved difficult as Alibaba’s efforts were hampered by the United States’ increasing concerns about possible security risks regarding the usage of Chinese cloud services. Thus, Southeast Asia has emerged as a battleground where Chinese and Western companies compete with each other. Businesses who cannot afford to divide their cloud services needs between Western and Chinese firms may need a geopolitical strategy in order to ‘pick sides’ based on their operational geography or markets they would like to access.
The Covid-19 pandemic has also caused a spike in demand for internet connectivity as consumers demand access to digital content and services more frequently and for more extended periods. Therefore, having access to resilient broadband and delivering better connectivity at faster speeds is vital for consumers and enterprises. The race to adopt and deploy 5G networks in ASEAN is imperative to accelerating ASEAN’s digitisation plans whilst keeping ASEAN competitive regionally and even globally. With 5G networks at the forefront of ASEAN’s digital transformation, it may be inevitable that this too will become a battleground for digital dominance between the US and China in the future.
Ultimately, Southeast Asia’s digital market has been moulded by contemporary events, the pandemic, and geopolitical phenomena that have shown signs of a path to a promising future ahead. While indications suggest that there are abundant opportunities for Southeast Asia to capitalise on, it must be able to do so strategically in order to reap maximum benefits.