China has been the biggest topic in global economics over the past four months, and now the effects are becoming evident.
Early stage M&A activity in Australia has been hit by a sudden slowdown, as a direct result of of what’s happening in the world’s second-largest economy.
Australia is heavily exposed to China in a range of sectors and as a result the country is now under-performing other markets in the region, according to the latest Intralinks Deal Flow Predictor report.
Early-stage merger and acquisition activity in the September quarter fell by 2.6% compared to the same quarter in the previous year. Activity rose 1.4% in the June quarter.
The easing demand for Australian commodities, such as iron ore and coal, has also meant a fall in inbound investment from China.
Deal making confidence in Asia Pacific and the US has been knocked by Chinese equity market meltdown and confusion over US interest rate policy, says Intralinks.
A new free trade agreement with China is expected to bring a surge in activity. The agreement will see 95% of Australian exports eventually become tariff-free, with significant benefits for agricultural and resources sectors. The Australia-China FTA (ChAFTA) is expected to be approved by the Australian Parliament with the backing of the Labor Party.
Intralinks is a global provider of software and services, including virtual data rooms for managing M&A transactions. Its deal flow monitor is based on activity levels in dealing channels that it monitors.
Early-stage M&A activity in the APAC region increased just 3.2% in the quarter compared to 34.1% the previous quarter.
“Australia, which has benefited over the past 15 years from increasing Chinese demand for its iron ore and coal, has also historically seen significant inbound M&A flows from China,” says Philip Whitchelo, vice president of strategy and product marketing at Intralinks.
“With the precipitous decline in global commodity prices and a slowing Chinese economy, Australia is adjusting to a significant M&A slowdown in the previously dominant metals and mining sector.”
Sectors showing increased early-stage M&A activity over the next six months, include media and entertainment, consumer, financials and healthcare.