Scott Murdoch and Anshuman Gag

SYDNEY/SINGAPORE – Asia deal volumes fell in the first quarter. Dealmakers don’t expect a rebound soon as Russia-Ukraine conflict, high interest rates, and economic uncertainty have hurt business sentiment.

Mergers and acquisitions (M&A) and equity capital market activity declined sharply in the region over January-March, according to Refinitiv data, with Chinese stocks among the biggest losers in Asia.

M&A involving companies in Asia Pacific and Japan fell to $233 billion in the quarter, down 25% from a year earlier and nearly halving from the final quarter of 2021, the data shows.

This follows record high global M&A deals in 2021 amid easy availability of cheap financing and sky-high valuations as U.S. stocks saw their best three-year run in more than two decades.

“Deal flow in M&A is fundamentally driven by the confidence boards have around the outlook for businesses and the macro developments in the world,” said Rohit Chatterji, JPMorgan (NYSE:)’s co-head of M&A, Asia-Pacific.

Analysts and bankers believe that the Russia-Ukraine crise, rising commodity prices and inflation, as the world recovers from COVID-19, are holding back deals.

Chatterji said that the buyers want to know if the market-based pricing is valid and sellers want to be able sell their products if they don’t get what they are looking for.

Deal between Macquarie Asset Management in Australia and British Columbia Investment Management Corp to purchase a 60% share National Grid (LON:), The biggest deal involving Asia Pacific businesses this year involved British Gas Transmission and Metering for an Enterprise Value of approximately $12.7 Billion.

The data revealed that the deal to acquire Baring Private Equity Asia from Sweden’s EQT (NYSE) was the second largest.

Chatterji stated that the longer the deals are dislocated the more potential financial sponsors will be able to enter into agreements.

The dealmakers stated that stability in equity market markets was a requirement for revival of deals, but they anticipate little change in the short-term.

HONG KONG IPOS NOSEDIVE

Refinitiv data revealed that equity capital market activity across Asia including Japan fell by 54% to $56.5billion in the first quarter compared with a year ago and dropped 64% in the fourth quarter 2021.

Initial public offerings activity dropped 35% compared to the previous year. Hong Kong suffered the most drastic drop, dropping from $11.05billion in the first quarter of 2021 down to only $837 million.

From a year ago, the city was the No. 2 IPO market in the world behind Nasdaq. It is now eighth.

South Korea’s January listing for $11 Billion of LG Energy Solution, a battery manufacturer in South Korea, made Seoul the top-ranking listing location in the quarter.

Some experts believe that China may see improvement.

China is still a major economic power. It could benefit from China’s relatively relaxed rate of tightening, compared to the U.S. which has a 5-to-7 times rate increase cycle. This is according to Selina Cheung who is UBS’s Asia co-head for equity capital markets.

I believe that good data should start coming out of August if relative monetary easing has an impact on how corporate earnings perform in the first half. “If and when it happens, I believe there’s an opportunity for the market to open up and investors to gain renewed confidence,” she stated.

Investors also monitor the impact of increasing COVID cases. On Wednesday, Shanghai, China’s most populous and home to approximately 26 million residents, was placed under lockdown for the third consecutive day.