In an increasingly volatile and uncertain world, Australia boasts an array of opportunities for foreign investment, all set against a backdrop of stability and economic resilience. Australia’s business-friendly environment, supportive governmental policies, and robust infrastructure make it an ideal choice for enterprises seeking a foothold in the Asia-Pacific region before venturing further afield. However, success for investing in Australia is not guaranteed.

In the third and final instalment of our 2023 Investor Sentiment Study, in partnership with Mergermarket, we examine the critical factors to consider when investing in Australian projects, including the impact of ESG, Digitisation, and Valuations. We reveal insights into the perceptions and intentions of more than 190 international decision makers and explore key factors for assessing deals to help investors navigate investment in Australia with confidence.

ESG is front and centre

Australia's natural environment, economy, and society are all impacted by its vulnerable ecosystems, water resources and changing rainfall patterns, rising temperatures, and more frequent extreme weather events. There is growing acceptance that Environmental, Social, and Governance (ESG) issues are not only important for the well-being of the planet, but they are critical for the sustainability and success of businesses operating in Australia.

When making investment decisions, foreign investors are increasingly putting ESG considerations front and centre in the investment process. Respondents also noted that regulatory obligations regarding the corporate management of ESG issues are more strict in Australia than elsewhere.

Digital transformation

As technology continues to advance and consumer expectations evolve, innovative companies in Australia are rethinking how they operate to stay competitive. Australia is a rewarding market in which to develop digital technologies and our stand-alone A$167 billion technology sector has grown by 80 per cent in 5 years, making it the third biggest contributor to the nation's GDP according to the Why Australia – Benchmark Report 2023 by the Australian Trade and Investment Commission (Austrade).

The valuation gap

Valuation is an inevitable challenge in the market given the strength of investment activity in Australia. With so much demand for Australian assets, sellers have become accustomed to charging premium prices. While the market may be returning to historic norms, expectations will take some time to adjust.

Increased inflation, supply chain disruptions, labour shortages, rising interest rates, regulatory shifts, geopolitical instability, and global recession concerns have all contributed to the valuation gap between buyers and sellers. Efforts to resolve these disagreements can add delays and costs to the investment process and risk derailing transactions altogether. This is reflected in our findings, with the valuation gap ranked as the top challenge foreign investors in Australia expect to face in the year ahead.

Assessing the deal

Reflecting on their recent investments in Australia, respondents were split regarding the outcome of their
efforts, with 49 per cent saying they were satisfied with the results. One area foreign investors may be overlooking is the advantage of partnering with local advisors and knowledge-experts in Australia.

Of those who used an advisor in recent investments, 79 per cent said partnering with local experts enabled them to navigate the risk and regulatory landscape and complete transactions in a timely manner.