Geopolitical tensions push APAC firms to rebalance portfolios

It is needed to navigate a complex business environment.

Geopolitical tensions and capital efficiency regulation are just some of the external factors pushing 1-billion-dollar-companies in Asia pacific to urgently rebalance their portfolio. Jiak See Ng, Deloitte's Asia Pacific Strategy, Risk, and Transactions Leader, emphasised that businesses must adapt to global uncertainties while seeking growth and minimising operational costs.

“We have a lot of uncertainties in the global economy. We also see political tensions, and we have constantly evolving regulator requirements, so businesses will have to learn how to navigate in this super complex environment,” Ng stated. She highlighted the potential opportunities these challenges present, such as diversifying supply chains into emerging markets like Vietnam and Indonesia, which offer substantial growth potential.

Ng noted that companies should explore new partnerships and alliances in emerging markets to foster growth. She shared insights from a Deloitte survey involving over 250 clients across various industries and key markets in the Asia Pacific region, which identified three main drivers for portfolio evaluations: compliance with sustainability and climate regulations, pressure from stakeholders to improve shareholder returns, and technological disruptions such as artificial intelligence and quantum computing.

A notable finding from the survey is that nearly 60% of executives now assess their portfolio performance at least twice a year, a significant increase from 46% two years ago. Ng underscored the importance of continuously evaluating portfolio holdings to ensure optimal returns on investments and seize growth opportunities while divesting assets that no longer align with the company's strategic goals.

Ng stressed the importance of incorporating Environmental, Social, and Governance (ESG) considerations into portfolio assessments to enhance deal values. She said that Deloitte's survey found that companies with ESG considerations are likely to achieve deal values six times higher than those without.

Despite this, Ng highlighted a challenge: “Our survey found that 95% of our executives tried to divest one of their portfolio companies in the last 12 to 18 months. However, they were not able to sell, and they had to abandon the sales.” This emphasises the need for businesses to prepare thoroughly before launching a sale, including crafting a compelling ESG narrative and ensuring management is ready to present a strong growth story.

Ng advised companies to adopt an "always-on" portfolio management approach, meaning resources must be allocated to regularly review portfolio performance. This approach should include board-level oversight to ensure alignment with the company’s strategic directions, purpose, and values.