Say hello to your new Asian neighbours

When it comes to investment, you might think money only flows from west to east. Not so, says Lars Henriksson - here's why you should look out for Asian capital coming this way.

After a long day listening to speakers at a major investment conference, I'm writing to you from the 57th floor of a tower block in Kuala Lumpur. I've a drink on the table beside me in a newly opened sky bar with prices that can compete with the best places in London.

The bar is located like a nest on the top of a spanking new skyscraper squeezed in between the Mandarin Oriental hotel and the famous Twin Towers. The sun is about to set and the view is panoramic, making it easy to see how quickly the city centre is starting to resemble Hong Kong and Singapore.

I have a lot of things on my mind, but one thing stands out: change is coming. Real and permanent change. And very few people in the West are aware of it yet.

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That is plain wrong. Ten years from now, this bar will overlook a city that is the thriving heart of a new economic force the Asean trade bloc. The rail lines are being laid. Local airlines are expanding their fleets. And trade between the Asean nations is thriving.

In fact, these people are already looking to expand their influence beyond their own shores

Malaysians land Battersea Power Station

Two weeks ago, Battersea Power Station, one of London's most iconic landmarks, became the subject of a bid by two Malaysian companies, SP Setia and Sime Darby, for £400m. They have about three weeks to complete the due diligence and negotiations.

The Malaysian consortium competed with a number of parties, but was named the preferred bidder and signed an exclusive agreement with the administrator Ernst & Young LLP on 7 June.

Most Londoners are sceptical and think the redevelopment project is likely to end in tears. It has proved a poisoned chalice for a number of property groups in the past, most recently Irish group Real Estate Opportunities.

But I'm not so sure. I think we should listen carefully to the Asian side of the story.

Have cash, looking for a home and prestige

To put things in context, it is important to understand that after the Asian financial crisis in 1997-98, Malaysia and other affected countries went through a long period of painful de-leveraging. After the crisis, the country embarked on growth strategies that have started to bear fruit. We highlighted some of these in "A new blueprint for Southeast Asia".

Take SP Setia, the driving force behind the consortium bidding for Battersea. Over the last decade the company has grown from a pure Malaysian property developer to have projects in Australia, China, Indonesia, Singapore and Vietnam. The brand is one of the strongest in Malaysia and the stock market has great faith in its execution capabilities evident by a prospective price earnings multiple (p/e) of almost 20x for next year.

What exactly are they planning with Battersea?

Well, it sure is a big project with an estimated eight million square feet of gross space in the area, divided into 3.5 million square feet of apartments and 500,000 of social housing, and the balance retail, offices and car park space.

The price tag is attractive given a gross development value of £8bn. That leaves plenty of room to pay for an estimated £200m for an extension of the Northern Line and other costs.

What's impressive is that the company has lined up Malaysian institutions that are ready to bankroll the scheme (in stark contrast with European banks that are de-leveraging). The construction could start next year and last ten to 15 years, depending on the economic situation.

The company plans to use Battersea as an iconic development and an opportunity to cross-sell between Asia and the UK. That is, Asian investors who bought from them in the past can invest in the London property market, often home to their children who study or live there in a city that is still deemed as the most prestigious for the affluent.

There is no information available on pricing yet. But it should be affordable for Asians and other people from emerging economies, who are expected to be the main buyers.

For SP Setia the project is seen as a major stepping-stone to being a real multinational company. Without including this project the company plans to sell Malaysian properties worth RM4bn (£800m) in 2012, which can be compared with RM1.2bn (£240m) in 2007.

Europe gains, but the bulk of the money is to stay in Asia

What does this really mean? It simply means that we have to learn to appreciate that there will be considerable trade flows between the Asean and the West in coming years. Companies and people with spare cash will come to our shores to invest in assets that are perceived to be undervalued.

Malaysian investors have a good grasp of London, as many have studied there and benefit from strong links going back to colonial times. I expect more Asian investors will follow suit, underpinned by opportunities being thrown up by highly geared European banks and property developers.

But the change is low-key. How many of us were aware that the Malaysian Employees' Provident Fund (EPF) acquired an office block in St James's Square for £155m from an Irish property company in August last year? That was the fourth investment over a 12-month period, bringing the total London property portfolio to £634m.

Next month marks the 15-year anniversary of the onset of the Asian financial crisis. The proposed Battersea development underlines how far these companies and investors have travelled since then.

You may ask whether this is weakening the case for investing in Asia? Not at all, the large amount of cash being generated in Asia needs to find new homes where it can generate good returns in the long-term. And the bulk of the money generated in the region will of course be invested at home. There is simply greater investment potential there.

But I see Battersea Power Station as the first of many massive deals from the Asean bloc. And of course there are plenty of opportunities to play this theme for savvy investors. The trouble is finding good information on what is happening on the ground in Southeast Asia.

How we can beat most investors to the Asean story

That's where I come in. Because if there is one thing that strikes me every time I return to this part of the world, it's that information is not free. People are friendly. But they guard their insights carefully and are not willing to talk on the record. The sessions at the Asean conference this week all started with a request not to quote any of the speakers. And a lot of the best insights come from private conversations with former colleagues, friends and contacts that I've developed from living in Asia over the past decade.

It's this kind of information advantage that will lead us to great opportunities long before the fund managers follow us in. So stay tuned. I'm visiting Singapore and Thailand on this trip. And I look forward to telling you more about the great rise of this new economic power.

This article is taken from MoneyWeek Asia, our FREE email on how to invest profitably in the world's fastest-developing and most exciting region. Sign up to MoneyWeek Asia here.

Lars is an emerging-markets expert, with many years of 'on the ground' experience hunting down profit opportunities in Asia. Lars spent ten years living in Malaysia and Thailand, seeking out strategic opportunities, before moving to London to manage the Oracle Asia Absolute Fund. In short, Lars has real knowledge of where the opportunities in Asia are.