BEIJING — China-focused venture capital and other private investment funds have had a slow start to the year and are set to drag down Asia-Pacific fundraising to the lowest in 10 years.
That’s according to a second-quarter update Thursday from Preqin, an alternative assets research firm. Alternative assets include venture capital, but not publicly traded stocks and bonds.
“Given the ongoing economic uncertainties and geopolitical tensions related to China, investors continue to maintain a cautious stance,” Angela Lai, vice president and head of APAC and valuations, research insights, at Preqin, said in a statement.
“We currently don’t see investors returning in large numbers to add allocations specifically to the China market.”
China’s economic rebound from the pandemic has slowed in recent months. Challenges for the venture capital world go back further.
The fallout around Didi’s U.S. initial public offering in the summer of 2021 and increased regulatory scrutiny from the U.S. and China paused what was once a thriving international investment trend.
China-focused venture capital funds raised $2.7 billion in the second quarter, a drop of more than 50% from the first quarter, Preqin said. That dragged down overall VC fundraising in Asia-Pacific to $4.5 billion in the second quarter, the lowest in at least five years, the report said.
“Any time you add an additional element of regulatory risk, or the government may shift gears and change course, you’re adding more risk to the equation than the average venture capitalist wants to take,” said Andrew J. Sherman, Washington, D.C.-based partner at Brown Rudnick.
Still, “no sophisticated U.S. investor thinks they can make all their money just investing in the U.S.,” he said, noting firms are still looking for opportunities in China and India to maximize returns.
Preqin’s analysts still see “China’s economy as holding the key to a full recovery” in Asia-Pacific given “its broad range of investment opportunities and deep capital markets, and significant influence as the top trading partner for many APAC countries.”
In China, new rules for private investment funds are set to take effect Sept. 1, with a stated goal of “guiding” venture capital investment for long-term investment in “innovative startups.” That’s according to a CNBC translation of the Chinese.
Falling valuations
In private equity, China-focused funds are having an “even more challenging time” this year, Lai said, adding that in 2022, they raised just under 12% of what was raised in 2021.
China-focused private equity firms’ assets under management also declined for the first time in at least five years, Preqin said, noting it was “a development worth monitoring.”
Lai said it’s a result of new capital coming in more slowly than the firms are liquidating existing investments — and if those investments’ valuations decline.
Reflecting a global trend in falling valuations, China-based fashion startup Shein raised $2 billion in the second quarter — but at a valuation of $66 billion versus $100 billion just over a year ago, Preqin said.
Going to Japan
Money is meanwhile flowing to Japan.
Asia regional funds have grown their share of APAC private equity fundraising in the second-quarter, with Japan-focused Advantage Partners raising the largest amount at just under $1 billion, Preqin said.
Japan had the highest private equity deal-making in Asia-Pacific for two straight quarters, while deals in greater China dropped by more than 55% in the second quarter from the first, the report said.
We expect an increasing focus on advanced technologies across APAC as the technology race between China and the US intensifies.
Preqin
“This market is often perceived as lower risk, with relatively stable, albeit sometimes lower, returns. The depreciation of the Japanese yen against the US dollar has further added to its appeal to foreign investors, particularly real estate investors.”
In other Asia-Pacific deal activity in the second quarter, Preqin noted Japanese and South Korean private-equity backed deals in semiconductors and the electric car supply chain.
“We expect an increasing focus on advanced technologies across APAC as the technology race between China and the US intensifies,” the report said. “This will catalyze more investments along these value chains, implying that opportunities for private investors could arise.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
