Diplomat author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into Asian affairs. This conversation with Winston Ma – adjunct professor at the NYU School of Law and author of the newly published “The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy” (2020) – discusses the importance of sovereign wealth funds in the global economy, especially in terms of boosting tech champions.
Describe the impact of sovereign funds on the investment ecosystem. Why is this group of investors increasingly important for capital market players?
For that, here is a quick question: Who holds the power in financial markets? For many, the answer would probably be the large investment banks, big asset managers, and hedge funds that are often in the media’s spotlight. But a new group of sovereign investment funds, which includes some of the world’s largest sovereign wealth funds (SWF), government pension funds, central bank reserve funds, and other sovereign capital-enabled entities, have emerged to become the most influential capital markets players. They are estimated to have $30 trillion in assets under management and have enormous power in the financial world.
My first direct encounter with the sovereign funds was during the global financial crisis of 2007-2008, when I left Wall Street to join the newly established China Investment Corporation, the SWF of China. At that time, SWF was a new entrant to the global capital markets; now, it is hard to avoid the headlines that its activities attract.
Briefly explain how sovereign funds are reshaping investment in the digital economy.
Because of their ample resources, long time investment horizon, and their need to diversify globally, the sovereign investment funds are the new, powerful venture capitalists. They are drastically changing the tech investment rules of VC funds and Silicon Valley.
Thanks to the large size of their investments, they are the “unicorn makers.” They have shaken off their traditional, passive investor roles and stepped into the vanguard of the digital transformation we are all living through. They have fostered the rise of the likes of Uber, Alibaba, Spotify, and other transformative players in the digital economy, while providing their founders and business models the benefit of long-term capital.
What investment strategies differentiate China’s sovereign funds from other top-ranking counterparts in Norway, Abu Dhabi, and Singapore, among others?
China has the world’s largest internet population, and it is one of the most interesting innovation centers in the world. That is a huge advantage for China’s sovereign funds, hence the “China-angle” investment strategy.
That means CIC looks for investment opportunities that may be driven by China’s market growth – synergies between China and world markets. For foreign company investments, CIC could help the companies to design and execute innovative value-enhancing strategies in China. For example, a foreign e-commerce app may enjoy a jump in user traffic when it’s connected to the China market, where 900 million internet users are integrated by the same language, culture, and mobile payment.
Analyze the nexus of sovereign funds in the scope of international relations, technology, geopolitics, and globalization.
The general perception is that most sovereign investors lack transparency and have questionable governance controls, causing an investee nation to fear exposure to risks of unfair competition, data security, corruption, and non-financially or non-economically motivated investments. The current global tensions around the AI race and tech competition have exacerbated such misperceptions, spawning controversies around sovereign investors and capital markets, governments, new technologies, cross-border investments, and related laws and regulations.
Much of my new book serves to push for the normative standpoint that there can be positive economic and political effects that the sovereign investment funds can uniquely bring about – for example, their long-term capital is an important resource to cover the global infrastructure gap, both physical and digital. I hope that we, be it SIF investors, tech unicorns, VC funds, financial firms, policymakers, academics, or the general public, can move towards a more balanced understanding of SIFs in the modern political context.
Assess the role of the United States in shaping the global landscape of sovereign funds.
The U.S. is shaping the landscape in two significant ways. On one hand, the current global tensions have led to more scrutiny of foreign investments across all continents. The U.S., volume leader in inbound investment, is a bellwether in the expansion of the “national security” concept into ever more corners of the economy.
On the other hand, the U.S. is setting up its own sovereign funds for tech competition, most notably on 5G network technology developments. For example, the newly created U.S. International Development Finance Corporation, with $60 billion in funding, announced in December 2019 a program to provide finance to emerging markets in the development of mobile networks. Furthermore, earlier in 2020 a bipartisan group of U.S. senators introduced legislation that would provide over $1 billion to fund the development of Western alternatives to Huawei.
Therefore, we should no longer shy away from the reality that sovereign financing has always been as political as it is economic; instead, I advocate for balanced policy responses among all stakeholders. This book is a merely a starting point for future global dialogue.
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.
