Stronger M&A activity in the Asia-Pacific region next year hinges on improving macroeconomic conditions after deals in 2022 remained at an eight-year low on funding costs, weak stock markets and China’s pandemic containment measures, dealmakers said.

They said trading would slowly recover as companies and funds focus on looser macroeconomic conditions. Hopes are growing for Chinese companies to return to the market.

Deals involving companies in the Asia-Pacific region were worth $1 trillion between January 1 and December 15, down 41% from the full-year figure for 2021 and the lowest since 2014, preliminary data from Refinitiv showed. Private equity deals, the main M&A driver, totalled $139 billion as of December 15, down 52% from all of 2021.

Globally, a record rise in US interest rates and Russia’s war with Ukraine sparked a sell-off in commodity and public stock markets, denting trade. Buyers are struggling to secure leveraged financing, which is especially important for acquisitions, dealmakers said.

The sale of a minority stake in Vietnamese education company Nguyen Hoang Group has been put on hold after bids fell below an estimated $1 billion valuation, Reuters reported this month.

However, Toshiba said on December 16 that it aimed to reach an agreement with potential partners on a $16 billion takeover of the Japanese conglomerate as soon as possible, as people familiar with the matter said the conglomerate’s preferred bidder was getting closer to securing the deal.

India is the only primary market in the Asia Pacific to see growth, with the total value of M&A deals rising 33% to $164 billion in 2021. HDFC Bank, India’s largest private bank, contributed considerably to its $40 billion takeover of its largest shareholder, the country’s largest-ever deal.

A recovery in Asian equity capital market volumes from three-year lows will also help M&A deals, dealmakers said.

Deal value in China, Asia’s largest M&A market, fell 39% to a nine-year low of $352.7 billion. The country’s strict COVID-19 restrictions, which abruptly ended earlier this month, have hampered growth in the world’s second-largest economy.

Bankers and lawyers expect pent-up demand for local and cross-border deals to recover as the country eases pandemic measures.

Chinese companies have also shown renewed interest in Australian targets, including natural resources and agricultural assets, hoping a diplomatic thaw between the two countries will lead to more deals next year.

Elsewhere in the region, takeovers of Australian-listed companies, Japanese activism-driven deals and sales of digital infrastructure assets in Southeast Asia will also drive deals next year, bankers said.