Private Equity Slows China Investments as Biden Prepares Curbs

Private Equity Slows China Investments as Biden Prepares Curbs

(Bloomberg) -- Money managers on Wall Street and in Silicon Valley are learning once again that investing in China can be fraught.

The Biden administration is close to completing an executive order that would curb US investment in China’s tech industry, foreshadowing a further slowdown in bets on the world’s second-largest economy.

Uncertainty over policy related to China has already contributed to a decrease of capital flowing into the Asian country. In recent years, money-losing buyouts and Beijing’s intervention into deals have diminished firms’ appetite to take majority stakes in Chinese companies. They were the targets of just 0.29% worth of deals US private equity investors were part of in 2022, down from 1.19% a decade ago, according to PitchBook data. 

Curbing China’s reach over semiconductors and global supply chains has galvanized Democrats and Republicans and will be a key campaign priority for 2024. Against that backdrop, the Biden administration’s executive order would create a system for monitoring and potentially blocking US investments in China. 

It would aim to curb investments into certain sectors there, such as advanced semiconductors, some types of artificial intelligence, decryption capabilities and industries bolstering Beijing’s military and economic might, said people familiar with the matter. Lawmakers have been developing similar legislation in recent years, though nothing has passed yet.

The potential new measure has been closely watched by private equity and hedge fund managers as it took shape in recent months. It could require US companies to provide more reporting on their dealings with China and give the government new authority to challenge deals on national security grounds. 

‘Extra Step’

In anticipation of the order, some private equity and venture firms are calling in advisers to conduct more formal evaluations of their Chinese investments through the lens of national security, said H.K. Park, managing director of Crumpton Global and a former Pentagon official who performs these reviews. 

“Some investors have taken the extra step of divesting from problematic Chinese companies now rather than divesting at a discount after the executive order is released,” he said. 

President Joe Biden is prepared to request funding for it later this week in his fiscal 2024 budget, according to reports to Congress obtained by Bloomberg. US Assistant Treasury Secretary Paul Rosen and General Counsel Neil MacBride have told money managers and business executives in recent weeks that an order is coming by the second quarter, some of the people said. 

Treasury Department officials declined to comment. 

Earlier: Biden Weighing Actions to Curb US Investment in China Tech

US officials drafting the order have signaled it will cover new investments and not past wagers, said people familiar with their thinking. It will also go through a months-long notice and comment period, meaning any curbs won’t take effect immediately.

The shift toward more restrictions is a change from previous years, when US companies sought to profit from China’s burgeoning middle class and steer the country’s startups to even faster growth. Firms such as Blackstone (NYSE:BX) Inc. counted China’s sovereign wealth fund and state institutions as key clients, and Chief Executive Officer Steve Schwarzman served as an intermediary between US administrations and Beijing.

Sequoia Capital’s China arm piled into Chinese bets such as semiconductors and biotech, and its US arm joined some deals, including a 2020 financing for Tiktok parent ByteDance. The firm’s China investments have helped gather momentum for outbound investment curbs among US officials and lawmakers, said people familiar with their thinking. And Sequoia representatives have pushed for a targeted and defined set of restrictions in talks with Washington, people familiar with the matter said. The firm declined to comment.

China’s Crackdown

After President Xi Jinping wiped out the for-profit education industry and cracked down on Jack Ma’s Alibaba (NYSE:BABA), private equity firms learned the hard way how investor fortunes could turn if their bets collide with Beijing’s priorities. 

For example, Blackstone invested in Didi Global Inc., the ride-hailing giant that ran afoul of Chinese authorities over its New York stock listing. After Didi announced plans to reverse its listing in 2021, its shares plunged. Blackstone dropped a $3 billion bid for Chinese property developer Soho China in the face of a longer-than-expected review.

The firm has put more emphasis on ensuring returns justify the mounting regulatory and political risks in China, said people familiar with the matter. Potential rules screening investments, especially those relating to China, “could further negatively impact our ability to deploy capital in such countries,” Blackstone said last month in its annual report.

Several private equity firms have tried to show they make targeted wagers that don’t bleed into political terrain — a difficult task in a country where the state apparatus looms large. 

KKR & Co (NYSE:KKR).’s co-CEO, Joe Bae, who built the firm’s Asia-Pacific business, told investors in April that it focuses on areas such as financial services in China — not semiconductors and advanced technologies. 

Last year, Carlyle Group (NASDAQ:CG) Inc. set new investment parameters for its latest Asia fund that will allow it to invest a smaller amount in China than in previous such funds. 

All three private equity firms declined to comment. 

Stateside Scrutiny

Talks between US policymakers and money managers about Chinese investments have been ongoing for months. Last June, several large private equity firms gathered at a secure facility in New York for a briefing, said people familiar with the matter. During the discussion, Senator Mark Warner, a Virginia Democrat, detailed how private equity investments in China could undermine US efforts to stymie Chinese military and technology advances. 

“US investment, lending and structured finance firms are the envy of the world, and the CCP hopes to attract and exploit these resources in order to achieve its larger strategic aims,” Warner said in an emailed statement, referring to the Chinese Communist Party. “The American private sector should be wary of inadvertently supporting the CCP in those efforts.” 

Warner has expressed concerns to associates that investment firms are funding tools for Beijing to gain influence, said people familiar with his thinking. One firm he has raised these concerns about is General Atlantic, a growth investor whose China bets include ByteDance, one of the people said. Sequoia and KKR are also among investors in ByteDance.

General Atlantic declined to comment. 

Last week, Commerce Secretary Gina Raimondo acknowledged that any attempt to monitor the flow of investments into China is complicated.

“You certainly don’t want to do anything that has an unintended consequence,” she said in an interview. “It’s one thing to deny goods. It’s another thing to deny any money flows.”

Meanwhile, some firms outside the US are stepping up as their American counterparts retreat. Swedish firm EQT (NYSE:EQT) AB’s Asian platform BPEA EQT is betting that a less crowded field will allow it to swoop in on Chinese deals at attractive valuations, said people familiar with the matter. EQT declined to comment. 

US officials said they’re talking with other countries about the plan. 

 

# FOREX

2023-03-07 04:18:00     Come from : Bloomberg

Dollar edges lower; Powell testimony looms large

Dollar edges lower; Powell testimony looms large

By Peter Nurse 

Investing.com - The U.S. dollar edged lower in early European trade Monday, with a testimony by Federal Reserve Chair Jerome Powell to U.S. Congress prompting caution at the start of the week.

At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 104.403, having last week recorded a weekly loss for the first time since January. 

Recent comments from Fed policymakers have pointed to more interest rate increases to combat inflation proving to be stickier than expected. 

This continued over the weekend, with San Francisco Federal Reserve Bank President Mary Daly stating that "in order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary."

Richmond Federal Reserve Bank President Thomas Barkin said on Friday that he could envision a scenario where the central bank pushes the U.S. benchmark policy interest rate to the 5.5%-5.75% range, a full percentage point above the current range.

This brings the focus squarely on to Powell, who will present the Fed's semi-annual monetary policy report to the Senate on Tuesday and the House of Representatives on Wednesday.

Traders are currently fretting that Powell may seek to temper these hawkish expectations of a potential large hike later this month.

The Fed slowed the pace of rate hikes to 25 basis points at its last meeting on Feb. 1, after a 50-basis-point increase in December that came in the wake of four consecutive 75-basis-point increases.

Elsewhere, EUR/USD rose 0.2% to 1.0653, having gained 0.8% last week after European Central Bank President Christine Lagarde indicated that the central bank's interest rate increases may need to continue beyond March's 50-basis-point planned move.

Eurozone retail sales for January are due for release later in the session and are expected to show growth of 1.0% on the month, an improvement from the 2.7% slump the prior month.

USD/CNY rose 0.1% to 6.9174, with the yuan slipping after the Chinese government announced a 2023 GDP target of 5% over the weekend, a more cautious stance by Beijing over an economic recovery this year than expected.

GBP/USD edged lower to 1.2037, AUD/USD fell 0.2% to 0.6754, while USD/JPY fell 0.1% to 135.69, ahead of the BOJ meeting on Thursday, where the bank is widely expected to hold interest rates at record lows.

# FOREX

2023-03-06 16:20:00     Come from : Investing.com

Asia FX muted ahead of Powell testimony, China outlook weighs

Asia FX muted ahead of Powell testimony, China outlook weighs

By Ambar Warrick

Investing.com -- Most Asian currencies kept to a tight range on Monday as markets awaited more cues on U.S. monetary policy from a testimony by Federal Reserve Chair Jerome Powell, while a weaker-than-expected GDP forecast from China weighed on sentiment.

Cues on regional monetary policy are also due this week, with central bank meetings in Australia and Japan.

The yuan fell 0.1% after the Chinese government set a 2023 GDP target of 5% over the weekend. The figure was seen as lower than market expectations, and highlighted a somewhat cautious stance by Beijing over an economic recovery this year.

China’s offshore yuan fell 0.3%.

The GDP forecast offset some optimism over a Chinese economy recovery, after business activity grew at its fastest pace in over a decade in February after the lifting of anti-COVID restrictions.

Chinese trade and inflation data is due this week, and is set to offer more cues on Asia’s largest economy.

Other China-exposed currencies retreated following the weak GDP forecast. The Taiwan dollar fell 0.1%, while the Australian dollar lost 0.2%. Australia's central bank is expected to hike interest rates further to combat rising inflation.

The Japanese yen rose 0.2% ahead of the BOJ meeting on Thursday, where the bank is widely expected to hold interest rates at record lows.

The South Korean won was flat as softer-than-expected consumer inflation data for February gave more credence to the Bank of Korea’s decision to pause its interest rate hikes.

Broader Asian currencies kept to a tight range, while the dollar nursed recent losses ahead of Powell’s testimony on Tuesday. Any cues on interest rate hikes and the path of monetary policy will be closely watched.

The dollar index and dollar index futures fell less than 0.1% each on Monday.

The greenback had fallen sharply against a basket of currencies on Friday, amid some bets that U.S. interest rates will peak sooner than expected. But such a scenario is largely contingent on how inflation and the labor market will behave in the coming months.

Comments from Fed officials over the weekend suggested that interest rates will likely stay higher for longer - a scenario that is likely to limit any major upside in Asian currencies.

The region was hit hard by a spike in U.S. interest rates through 2022, with this pressure expected to continue in the near-term.

# FOREX

2023-03-06 13:11:00     Come from : Investing.com

Dollar subdued as traders eye Powell testimony, jobs report

Dollar subdued as traders eye Powell testimony, jobs report

By Ankur Banerjee

SINGAPORE (Reuters) - The U.S. dollar made a tentative start to the week on Monday as investors awaited testimony from Federal Reserve Chair Jerome Powell and looked towards for a February jobs report that will likely influence how hawkish the U.S. central bank will be.

The dollar index, which measures the U.S. currency against six major peers, was down 0.057% at 104.560, but not far off a seven-week high of 105.36 it touched last week. The index last week clocked a weekly loss for the first time since January.

After delivering jumbo hikes last year, the Fed has raised interest rates by 25 basis points in its latest two meetings, but a slew of resilient economic data has stoked market fears that the central bank might return to its aggressive path.

Futures imply a 72% chance the Fed will raise interest rates by 25 basis points at its meeting on March 22.

The spotlight will be firmly on the February jobs report scheduled for Friday and Fed Chair Jerome Powell's testimony to congress on Tuesday and Wednesday.

"U.S. underlying inflation remains stubbornly high well above the Fed's inflation target of 2%," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (OTC:CMWAY).

Recent data suggest that consumer spending is not slowing much, while the labour market is unsustainably tight, Capurso said in a note, adding that Powell would likely be hawkish in his testimony.

Citi strategists expect Powell to indicate a preference for a 25 bps hike but leave all options on the table, since he will speak before the jobs data are released.

Citi expects an increase in payrolls of 255,000 following January's enormous 517,000 jump. A large surprise on the upside could lead to a 50 bps hike from the Fed, Citi said.

Meanwhile, the euro was down 0.02% to $1.0632, having gained 0.8% last week.

The Japanese yen strengthened 0.01% to 135.85 per dollar, while sterling was last trading at $1.203, down 0.08% on the day.

In the spot market, the onshore yuan opened at 6.9072 per dollar and was last changing hands at 6.9067. On Sunday, China set a modest target for 2023 economic growth of around 5% as it kicked off the annual session of its National People's Congress.

In cryptocurrencies, bitcoin rose 0.95% to $22,455.94, having fallen 5% on Friday. Ethereum was up 0.51% at $1,567.30.

The Australian dollar fell 0.19% to $0.676, while the kiwi eased 0.10% to $0.622.

========================================================

Currency bid prices at 0128 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0627 $1.0634 -0.06% -0.82% +1.0637 +1.0615

Dollar/Yen 135.7550 135.8000 +0.00% +3.48% +135.9300 +0.0000

Euro/Yen 144.29 144.46 -0.12% +2.84% +144.6000 +144.1600

Dollar/Swiss 0.9370 0.9361 +0.11% +1.34% +0.9372 +0.9364

Sterling/Dollar 1.2028 1.2043 -0.14% -0.56% +1.2040 +1.2024

Dollar/Canadian 1.3610 1.3599 +0.10% +0.47% +1.3614 +1.3598

Aussie/Dollar 0.6745 0.6769 -0.34% -1.04% +0.6762 +0.6742

NZ 0.6211 0.6223 -0.25% -2.24% +0.6219 +0.6208

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

# FOREX

2023-03-06 10:00:00     Come from : Reuters

Dollar heads for losing week; euro gains on hawkish Lagarde comments

Dollar heads for losing week; euro gains on hawkish Lagarde comments

By Peter Nurse

Investing.com - The U.S. dollar weakened in early European trade Friday, on course for a weekly loss, amid uncertainty over the extent of the Federal Reserve’s future tightening path.

At 02:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 104.782, dropping back from the two-month high of 105.36 seen at the start of the week.

The dollar index is on course to fall 0.4% this week, which would be the first losing week since January.

Hitting the greenback was the suggestion that the Fed may stick to its moderate monetary tightening path for the market following comments by Atlanta Federal Reserve President Raphael Bostic.

Bostic said he favored "slow and steady" as the appropriate course of action for the Fed, arguing for a hike of 25 basis points later this month, adding the impact of higher interest rates may only start to be felt in the spring.

A series of robust economic data releases, including inflation proving to be sticky at elevated levels, had got traders thinking that the U.S. central bank could deliver a 50 basis point rate hike in two weeks’ time.

Elsewhere, EUR/USD rose 0.2% to 1.0617, climbing off a near two-month low of 1.0533 at the start of the week.

Inflation has come in higher than expected in the Eurozone this week, pointing to more interest rate hikes by the European Central Bank, on top of the 50 basis points that have already been signaled for mid-March.

ECB President Christine Lagarde said on Thursday that interest-rate increases may need to continue beyond the planned move, as policymakers will do everything to return inflation to the 2% target from the current above 8%.

Morgan Stanley raised its forecast for the ECB’s terminal rate to 4% earlier Friday, from its earlier prediction of 3.25%, citing the region’s hot inflation numbers. 

The central bank’s key rate currently stands at 3%.

GBP/USD rose 0.3% to 1.1980, remaining under 1.20 as expectations grow that the Bank of England will pause its tightening cycle before its major peers given the weakness of the U.K. economy.

USD/JPY fell 0.2% to 136.47, with the yen helped by the easing of U.S. yields, while inflation in Tokyo eased from an over 40-year high in February, data showed on Friday, but still remained at relatively high levels. 

NZD/USD rose 0.2% to 0.6227, AUD/USD climbed 0.3% to 0.6750 and USD/CNY fell 0.2% to 6.9018, after Chinese services activity data grew at a faster-than-expected pace in February, pointing to a recovery in the second largest economy in the world.

# FOREX

2023-03-03 16:08:00     Come from : Investing.com

Asia FX muted amid Fed jitters, Chinese yuan outperforms for the week

Asia FX muted amid Fed jitters, Chinese yuan outperforms for the week

By Ambar Warrick

Investing.com--Most Asian currencies were muted on Friday amid growing concerns over the path of U.S. monetary policy, while the Chinese yuan was among the best performers this week on a string of strong economic readings.

The yuan rose 0.1%, and was set to close the week nearly 0.8% higher. 

A private survey showed on Friday that Chinese service sector activity grew at a faster-than-expected pace in February. The reading comes after government data showed this week that China’s business activity expanded at its fastest pace in over a decade, cementing a post-COVID recovery in the country.

Gains in the yuan spilled over into other China-exposed currencies, with the South Korean won and the Australian dollar both set to close the week higher. 

A recovery in China bodes well for countries with a large trade exposure to the Asian giant, and could help improve the prospects for Asian economies this year. Friday’s positive data also came ahead of a meeting of high-level Chinese officials, which begins on Saturday.

But most other Asian currencies kept to small ranges on Friday, as U.S. Treasury yields surged overnight after a drop in weekly unemployment claims indicated resilience in the jobs market. The dollar also steadied on Friday against a basket of currencies, with the dollar index and dollar index futures falling 0.1% each.

The greenback was set for small weekly losses.

Overnight comments from Federal Reserve officials offered some clarity on where U.S. interest rates could peak this year, with Atlanta Fed President Raphael Bostic backing a 25 basis point hike during the March meeting.

But officials also warned that the Fed’s stance will be largely data-dependent, which, considering that U.S. inflation read higher-than-expected in January, could keep interest rates higher for longer. 

The Japanese yen rose 0.1%, and was nursing some losses for the week as data highlighted weakening economic trends in the country. Inflation in Tokyo eased from an over 40-year high in February, data showed on Friday, but still remained pinned at relatively high levels.

The Indian rupee rose 0.1% and was set to add 0.8% this week as data showed that the country’s economy grew 7% in 2022, vastly outperforming its Asian peers. Indian manufacturing activity also grew more than expected in February, indicating continued resilience in the South Asian economy. 

# FOREX

2023-03-03 12:33:00     Come from : Investing.com

Dollar regains support; euro weak ahead of inflation data

Dollar regains support; euro weak ahead of inflation data

By Peter Nurse 

Investing.com - The U.S. dollar rose in early European trade Thursday, regaining its firm footing, while the euro slipped ahead of key Eurozone inflation data.

At 03:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 104.737, near two-month highs.

The dollar has been supported by higher U.S. Treasury yields, helping the greenback rebound after logging sharp overnight losses.

This followed Minneapolis Federal Reserve Bank President Neel Kashkari suggesting that a 50-basis-point rate hike at the U.S. central bank's next meeting later this month was still a possibility.

"I think my colleagues agree with me that the risk of under-tightening is greater than the risk of overtightening," Kashkari said at a meeting Wednesday, adding that rates may ultimately need to go higher than the 5.4% level he had thought in December would be adequate.

The market is now pricing at a higher peak of 5.5% for the Fed's policy rate in September, a considerable leap up from the current range of 4.5-4.75%.

Elsewhere, EUR/USD fell 0.3% to 1.0633, after climbing 0.9% on Wednesday, its sharpest rise in a month.

The focus Thursday will be on the latest release of the Eurozone consumer price index for February.

Initial expectations were for the annual figure to fall to 8.2% in February, from 8.6% the prior month. However, data from Germany, France and Spain have all come in above expectations, pointing to the distinct possibility of a nasty higher surprise, piling the pressure on the European Central Bank.

The European Central Bank may need significant rate hikes beyond March, Bundesbank President Joachim Nagel said on Wednesday, with the central bank committed to an increase of 50 basis points this month.

"The interest rate step announced for March will not be the last," Nagel said in a speech. "Further significant interest rate steps might even be necessary afterwards, too."

GBP/USD fell 0.6% to 1.1965, weighed by comments from Bank of England Governor Andrew Bailey, who said on Wednesday that another rate hike was not inevitable, implying that the U.K. central bank was nearing the end of its tightening cycle.

USD/JPY rose 0.4% to 136.75, with the higher U.S. yields pressuring the yen. NZD/USD fell 0.7% to 0.6218, AUD/USD dropped 0.4% to 0.6731, and USD/CNY rose 6.9095, handing back some of Wednesday's gains after the healthy Chinese manufacturing activity data.

# FOREX

2023-03-02 16:25:00     Come from : Investing.com