Five years out of college in 1983, New York accountant Drew Bernstein took the leap as an entrepreneur with his childhood friend Neil Pinchuk at the right time. The start of Bernstein & Pinchuk LLP preceded a stock market boom that brought clients home and early international expansion into Europe.
Twenty years later, amid the early growth in U.S. listings by Chinese companies and the then warm ties between the two countries, Bernstein flew to northeast China to meet a potential client of a private company wishing to go public. There, Bernstein recalled that he had “the pride” to think he was ready to conduct accounting audits in a country still in a disorderly transition from its Maoist days to a globalized, market-driven economy.
It paid off. Bernstein & Pinchuk spun off the Chinese portion of the business into a joint venture with Marcum LLP in 2011. Today, MBP, Bernstein’s combined co-president company, has nearly 200 people working in mainland China, including six partners in five cities that represent an example of American entrepreneurial success in the country.
However, times are changing. Geopolitics, combined with regulatory uncertainties in China and the United States, has slowed booming listings in New York and Nasdaq by growing mainland companies such as Alibaba, JD.com and Netease. Although plans unveiled on Tuesday for a SPAC (or Special Purpose Acquisition Company) listing by Shanghai-based Fosun International’s Lanvin Group would be worth more than $1 billion, the recent stream of IPOs from China to the United States has been derisory. Meihua International Medical Technologies raised just $36 million before it began trading on the Nasdaq in February, the first listing in China since October.
Bernstein, now 65, has set himself a new business target: Southeast Asia. MBP plans to open an office in May in Singapore as a springboard to a growing region that also includes Indonesia, the Philippines, Vietnam and Malaysia. The region is a “very ignored part of the world,” especially in the United States, Bernstein believes. “I think we’re at the very, very beginning for them because things are starting to line up.”
What’s in line? On the one hand, GDP growth – at least in February, before Russia’s brutal invasion of Ukraine shocked the world. “Our forecast for developing Asia is that economic growth will be 5.3% in 2022,” Asian Development Bank chief economist Albert Park said on Feb. 1. “We consider this to be a steady recovery from the pandemic and is supported by progress in vaccination rates and control of Covid-19 disease.
Another potential upside for Singapore, Southeast Asia’s main financial hub, is less interest from foreign firms in regional financial services competitor Hong Kong. According to a survey published by the European Chamber of Commerce in Hong Kong on Wednesday, a quarter of respondents planned to move “entirely” out of Hong Kong in the next 12 months given the current Covid-19 restrictions and 24% plan to move partially. More than 50% said they had difficulty recruiting staff from abroad. International investors are also worried about the fallout from China’s close relationship with Moscow in the aftermath of the war in Ukraine, pulling money from Chinese stocks on an “unprecedented” scale since late February, Bloomberg reported today. , citing the Institute of International Finance.
Another asset for Singapore and Southeast Asia for Bernstein is his experience of the growing number of SPACs. MBP has worked on “dozens” of SPAC deals in the US over the past few years and sees Western capital looking to partner with growth companies in Southeast Asia through SPAC combinations that could negotiate in New York or on Asian exchanges. “You have (about) 500 SPACs out there (in the US), looking for targets and valuable businesses,” Bernstein said. SPACs and other international investors eyeing Southeast Asia’s prospects will be prepared to offer relatively large amounts of capital that might otherwise not necessarily be so readily available to local entrepreneurs, he believes.
Although Asian exchanges have been slower to adopt SPACs than the United States, Bernstein sees this changing with improved regulation. “There is no doubt in my mind that you see both Hong Kong and Singapore recognizing the value of a SPAC as a tool to raise capital,” he said. “The SPAC market in Asia is currently in its infancy.”
Singapore’s potential further stands out for Bernstein because of the Singapore Stock Exchange‘s long experience and international links, and Singapore’s openness to business immigrants. The top 10 richest billionaires on the Forbes 2021 list with Singaporean nationality are dotted with members from Greater China, including Zhang Yong, chairman of restaurant chain Haidilao; Li Xiting, president of Shenzhen Mindray Bio-Medical Electronics; Forrest Li, founder of e-commerce company Sea, Shu Ping, co-founder of Haidilao; and Jason Chang, president of Advanced Semiconductor Engineering.
Bernstein also sees Singapore as a technology hub with similar potential to Israel, with its own local talent and the ability to attract foreigners to its shores. Singapore-based ridesharing company Grab, for example, debuted on the Nasdaq in December after merging with Altimeter Growth in Southeast Asia’s largest listing and SPAC deal to date. . This listing has been a disaster for investors so far, losing more than 70% of its value since.
Beyond technology, companies that cater to consumers with rising disposable incomes will also appeal to Western stock investors, he believes. “When someone making $4,000 a year doubles their income, 100% of that goes back into the economy.” Indonesia, based on its large population of over 275 million, is “by far the number one apart from Singapore” in terms of growth potential for MBP, he estimates, followed by Philippines, Vietnam and Malaysia.
What awaits Chinese announcements abroad? China’s recent push to encourage income redistribution through a “common prosperity” push could limit the country’s appeal to entrepreneurs if pushed too far, Bernstein believes. Limits on “who” can succeed, “how much” they can earn and global information flows can be “a difficult endeavor” for planners looking to grow the economy over the long term, he said.
Meanwhile, regulatory uncertainties in the United States and China are slowing overseas listings of Chinese companies. “The United States and China have established rules and the market does not know how the rules are going to be applied,” he said. These include thresholds for government review by China and for accounting disclosure requirements by the Securities and Exchange Commission. “In a way, markets are going to force people to make clear rules,” Bernstein said. “One thing I’m sure about China is that they’ve always been very clear about what they want to do and incredibly vague about the details of how it’s done. And it’s no different.
However, the US and Chinese sides will eventually agree on agreed accounting rules to facilitate listings, he predicts. “I describe China and the United States as a 50-year marriage, which is exactly what it has been. And in a 50-year marriage, there are very good times and very bad times. But at the end of the day, as I always say, the reason no one got divorced was because they couldn’t afford it.
MBP, although smaller than the big four accountants – Deloitte, Pricewaterhouse, EY and KPMG, believes its long track record of US listings by Chinese companies provides client value in Southeast Asia for local companies looking for international capital, Western investors looking for companies to put money in, and even mainland Chinese companies looking to expand into the region.
“When I enter a market, I only go there because I feel I can add value. I’m not going there to do the same thing everyone else is doing. I’m going to do better and come out on top, because every time you do that, the only thing that happens is you end up in the middle of the pack.
Visiting Singapore recently, he said he felt a little like he was in China two decades ago. “When I started in China 20 years ago, I looked out the window and didn’t know where anything was. I had no employees there. I had my cell phone. I don’t know where the company would come from, even today.
And so, he continued, “That’s where things seem to point,” in Southeast Asia. “It’s not that (Southeast Asia) is going to replace China. Nothing will replace China, because nothing has the size, breadth and depth of China. But given the nature of what I do and my work in emerging markets, you can’t ignore what’s happening right under your nose.
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