Survey: mixed outlook for emerging markets

An expected slump in returns and exit activity has done little to shake confidence in long term growth expectations for India, China, the MENA region and Latin America.

GPs based in India, China, the Middle East and North Africa (MENA) and Latin America expect a rough 12 months ahead in terms of exit activity and returns, according to the results of a recent survey from consultancy firm Deloitte. Nonetheless, confidence in the longevity of private equity in the regions remains universally high.

A clear majority of 69 percent of GPs surveyed in India, 53 percent in the MENA region, 70 percent in China and 90 percent in Latin America expect returns to drop over the next 12 months, according to Deloitte’s ‘Global Emerging Markets Comparative Report’.

In a similar vein, an overwhelming majority of GPs surveyed – 83 percent in India, 73 percent in MENA, 77 percent in China and 87 percent in Latin America – predict exit activity will stall over the next 12 months.

On the plus side, entry multiples are also perceived to be falling, according to 77 percent, 83 percent, 83 percent, and 93 percent of GPs across India, MENA, China and Latin America respectively.

This feeds into long-term confidence for the private equity markets in the various regions, which remains buoyant. Asked to measure their confidence on a scale of 1 to 10, the average result for all four regions came in at 8.1. Latin America recorded the lowest average, with 7.8, while Chinese GPs recorded the highest average at 8.3.

“The research highlights the complexities surrounding private equity confidence,” said Chris Ward, global head of corporate finance and CEO of Deloitte Corporate Finance in the Middle East. 

“Globally, private equity activity has dropped 53 percent since the beginning of the credit crunch in Q3 2007 and 60 percent in the emerging markets.  However, falling entry multiples are a sign that there are better times to come – this is very much reflected in the long term confidence cited by all the emerging markets, in spite of figures detailing the downturn.”

While results around expectations for returns, exit activity, entry multiples and long-term confidence for the four emerging regions showed similar trends, the survey also recorded some notable differences.

India was the only country where a clear majority of GPs surveyed – some 60 percent – said they expected deal activity to fall over the next 12 months. In China, GPs were more bullish – only 13 percent of respondents expected investment levels to fall, while 50 percent expected to see an increase. In MENA and Latin America, the outlook was more mixed, with respondents roughly divided between the two.
Likewise, responses varied on the topic of competition from other GPs. While some 60 percent of Indian GPs and 63 percent of Latin American GPs expected competition levels to fall in view of the economic downturn, the exact opposite was true of China, where 73 percent of GPs surveyed expected competition levels to increase. Response from the MENA region was varied, although on balance more GPs expected competition to increase than decrease.