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The job market may be strong, but the invisible strings that connect workers to their jobs are increasingly weaker. 

Trends such as “lazy girl jobs” and “quiet quitting” have gone viral in a post-pandemic world where young workers are trading ambition for balance. Actors and writers continue to strike. UPS workers were on the brink of one before reaching a tentative agreement with their employer. More than half of employees in a recent survey reported feeling burned out due to a demanding workload. 
How would all of that change if there were greater economic alignment between employers and their employees? If employees had more so-called “skin in the game?” 
That’s the rhetorical question that Pete Stavros finds himself constantly asking. As the co-head of global private equity at KKR, he’s been a key champion of instilling employee stock ownership programs in all the companies the firm buys for its $19 billion Americas Fund.
These are effectively additional benefits, doled out to the rank-and-file – outside traditional management stock plans. Employees are given a stake in the company they’re employed by; it’s additional compensation above their regular wages and benefits, so that they can participate in any upside value the company delivers. 
“So why should people do this? It’s because it’s just a superior way to run a business from every respect,” Stavros said in an interview for the Delivering Alpha Newsletter. “It’s better for investors, it’s better for the company, it’s better for employees, and in the end, it’s better for the communities that they live in.” 

The latest deal, announced this week, involved RBmedia, a KKR-backed audio-books publisher that was sold to another investment  firm H.I.G. Capital. At the closing of this transaction, expected by the end of the year, all RBmedia employees will receive a cash payout based on their tenure with the company. On average, that will amount to 100% of their annual salary. 
Stavros said the firm has exited about nine of these deals now, noting, “they are among the best.” He said the exits have returned anywhere from 3 times to 10 times the capital that KKR invested. Over 60,000 non-management employees have been awarded billions of dollars in total equity value through these ownership programs since 2011, the firm said. 
Stavros said that in KKR’s companies that utilized this program, quit rates went down and engagement scores skyrocketed. But he said that equity can’t just be given out to employees without support. He said there needs to be financial literacy, tax advice and education, as well as a way for employees to voice ideas and concerns – as any stockholder would do. 
“So when it’s done well, and it’s in this holistic effort, for sure, it can affect worker discontent, which will lead to people walking out the door less, people being more engaged on the job, and caring about where the business is headed,” he said. 
Stavros’s goal is to “see this roll out across the whole industry.” He and KKR are founding members of a non-profit called Ownership Works, with the ambition of generating at least $20 billion of wealth for lower-income and diverse workers over the next decade through shared ownership. Through the non-profit, other private-equity firms like Apollo and TPG also committed to advancing shared ownership within their own portfolios. 
It’s still relatively early days – especially an industry not known for quick change – but the concept appears to be the antidote to worker discontent…one exit at a time. More

A Southwest Airlines aircraft at a gate at AustinBergstrom International Airport (AUS) in Austin, Texas, US, on Thursday, Feb. 16, 2023. 
Jordan Vonderhaar | Bloomberg | Getty Images

Check out the companies making headlines in early morning trading.
Southwest Airlines — The carrier slid 6% premarket after reporting a mixed financial update early Thursday. Southwest said business revenues are continuing to recover, but not yet back to back to pre-pandemic levels, cited higher costs, including raising its jet fuel forecast for the full year to $2.70-2.80 per gallon from an earlier $2.60-2.70.

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16 hours ago

Chipotle Mexican Grill — Shares of the burrito chain fell more than 8% after its latest financial update showed sales fell short of Wall Street expectations. Chipotle reported $2.51 billion in revenue, while analysts polled by Refinitiv had expected revenue of $2.53 billion.
Edwards Lifesciences — The company saw its shares fall 6% after it posted slightly better-than-expected earnings and revenue for the second quarter but issued weaker than expected guidance. A forward earnings forecast of 55 cents to 61 cents per share excluding items fell below analysts’ estimate of 63 cents per share, according to FactSet.
Ebay — Shares of the e-commerce giant fell nearly 6% after issuing weak guidance for the current quarter. The company anticipates third-quarter adjusted earnings per share of 96 cents to $1.01 per share, while analysts polled by FactSet estimated $1.02 in earnings.
Align Technology — The orthodontics company surged 14% after posting adjusted earnings late Wednesday of $2.22 per share for the second quarter, beating estimates of $2.03 per share, according to Refinitiv. Revenue for the quarter also topped estimates, and revenue guidance for the year was above analyst expectations.
Meta Platforms — The Facebook parent jumped nearly 9% after reporting earnings and revenue for the second quarter that topped analysts’ estimates. Meta also issued a better-than-expected forecast for the current period amid a rebound in digital advertising.

Lam Research — Shares of the semiconductor equipment maker rose 3% after the company reported a strong quarter late Wednesday. Lam posted adjusted earnings of $5.98 per share, beating estimates by 91 cents per share, per Refinitiv. Revenue of $3.21 billion topped expectations of $3.13 billion. Financial surpassed estimates as well.
McDonald’s — The dominant fast food chain rose more than 1% after posting earnings and revenue Thursday that topped Wall Street expectations. McDonald’s cited a rebound in China sales as well as success from its Grimace Birthday Meal. Same-store sales grew 11.7% in the second quarter.
Honeywell — Shares of the industrial company fell 1.6% after Honeywell reported a mixed second quarter. The company earned an adjusted $2.23 a share on $9.15 billion of revenue. Analysts surveyed by Refinitiv were expecting $2.21 per share on $9.17 billion of revenue. The thermostat maker saw sales decline year over year for its safety and productivity solutions products.
Mattel — The toymaker’s shares slipped about 1% after it announced the departure of Richard Dickson, chief operating officer, who is leaving to become CEO of Gap. The Barbie maker also posted second-quarter adjusted earnings of 10 cents a share on revenue of $1.09 billion. Analysts called for a per-share loss of 2 cents and revenue of $1 billion, per Refinitiv.
ServiceNow — Shares of the tech company dipped about 1% despite ServiceNow second quarter results beating estimates on the top and bottom lines. ServiceNow reported $2.37 in adjusted earnings per share on $2.15 billion of revenue. Analysts surveyed by Refinitiv were looking for $2.05 per share on $2.13 billion of revenue. Several Wall Street analysts cited guidance that pointed to slowing growth on a constant currency basis in the third quarter as a potential concern.
Comcast — Shares of the NBC and Xfinity parent advanced more than 2% after reporting strong earnings Thursday morning, citing higher prices that offset slowing broadband growth. It also said subscribers for its Peacock streaming service nearly doubled to 24 million compared to the same period a year ago.
Imax — The big screen movie company added 6.4% following a strong second-quarter report. IMAX earned 26 cents per share, excluding one-time items, on $98 million in revenue, while analysts polled by Refinitiv anticipated 16 cents per share and $86.6 million. Management said that last weekend was one of the best global box office performances ever and that an accelerated rate of signups and installations signals positive long-term growth.
Sunnova Energy — Shares of the solar company slid more than 7% following weaker-than-expected financial results in the second quarter. Sunnova posted a wider-than-expected loss of 74 cents per share, while analysts expected a loss of 42 cents per share, according to FactSet. Revenue came in at $166.4 million compared to expectations of $195.5 million.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
 — CNBC’s Jesse Pound, Alex Harring and Yun Li contributed reporting More

China has a new central-bank boss. Pan Gongsheng, who became governor of the People’s Bank of China on July 25th, is a technocrat. His career, which includes a phd in economics, research at Cambridge University and Harvard, and a stint as deputy governor, resembles those of central bankers elsewhere. But he inherits a different problem: too little inflation, not too much.Listen to this story. Enjoy more audio and podcasts on More

China has a new central-bank boss. Pan Gongsheng, who became governor of the People’s Bank of China on July 25th, is a technocrat. His career, which includes a phd in economics, research at Cambridge University and Harvard, and a stint as deputy governor, resembles those of central bankers elsewhere. But he inherits a different problem: too little inflation, not too much.China’s consumer prices did not rise at all in the year to June. The country’s GDP deflator, a broad measure of the price of goods and services, fell by 1.4% in the second quarter, compared with a year earlier. That is the biggest decline since 2009.Falling prices pose immediate dangers for the country’s policymakers. They can erode profits, depress confidence and deter borrowing and investment, which will only add to deflationary pressure. The absence of inflation also has a less immediate implication—one of particular interest to those keeping score in the geopolitical race between China and America. Deflation could delay China’s emergence as the world’s biggest economy.Despite its difficulties, China’s economy is expected to grow by about 5% this year. America’s will probably grow by 2% at best. China would then appear to be gaining ground. But these forecasts exclude inflation and ignore exchange rates. America’s “nominal” growth, before adjusting for inflation, could exceed 6%, according to Goldman Sachs, a bank. The country will produce 2% more stuff, the price of which could rise by about 4%. China’s nominal growth, on the other hand, is forecast to be only 5.5%.In theory, high inflation in America should weaken the dollar. This would make other economies like China loom larger in dollar terms. In practice, however, America’s currency has been strong. As a result, China’s GDP, converted into dollars, could fall further behind its rival’s in 2023, for the second year in a row. The country’s economy will be 67% the size of America’s in 2023, according to Goldman Sachs, compared with 76% in 2021. Thus the world’s second-biggest economy will be a more distant second.This trajectory is unexpected. Upstart economies like China’s are not only supposed to grow faster than mature economies, their prices are also supposed to “catch up” with the higher prices that prevail in rich countries. Emerging economies start out poor and cheap, then grow richer and more expensive—either because their prices rise quickly, or because their exchange rates strengthen. In the 1960s, for example, an American visiting Italy or Japan would have found that the dollar stretched further in these countries than back home. Lira and yen prices, when converted into dollars at market exchange rates, were lower than American prices for similar items. Two or three decades later, both Italy and Japan were just as pricey as the United States. The classic explanation for this phenomenon was provided by Bela Balassa and Paul Samuelson, two economists, in 1964. In catch-up economies, productivity grows briskly in industries, like manufacturing, that trade goods across borders. Because output per worker rises quickly, firms can afford to pay their workers more without raising their prices, which are pinned down by global competition. Meanwhile, in sectors such as services, which are not much traded across borders, productivity grows more slowly. Service firms must nonetheless compete with manufacturing for the country’s workers. That obliges them to raise their wages to attract recruits. Higher wages, in turn, force these firms to raise prices. These price hikes are required because productivity has not kept up, and possible because services are sheltered from global competition. The hikes also make the country more expensive: the price of haircuts rises in sympathy with the growing wages of increasingly productive manufacturing workers.China’s prices are now on average only 60% of American prices when comparing like-for-like items, according to the World Bank. Their figure lines up with this newspaper’s Big Mac index, which compares the price of burgers around the world. In China a Big Mac costs 24 yuan, the equivalent of $3.35. That is only 63% of the cost of a similar meaty treat in America. The long-term forecasters at Goldman Sachs expect China’s price level to have risen modestly, relative to America’s, by the middle of the next decade. By that point, China’s GDP will have become the biggest in the world, they project. If prices instead remain at their present low level, then China’s GDP may never overtake America’s at all. Capital Economics, a research firm, cleaves to this gloomier view. It thinks China’s growth per worker will slow to roughly the same pace as America’s within the next decade. If China is no longer catching up with America economically, it argues, there is no reason to expect its prices to catch up either.Catch-up and friesThat conclusion may be too hasty. History provides plenty of cases in which a country’s prices rise, relative to America’s, even as its GDP per head grows no faster. For example, Ireland, Israel and Italy all had spells in the 1980s when GDP per person grew more slowly than America’s, but they nonetheless became less cheap, through faster inflation or a strengthened exchange rate. Figures from the Penn World Table suggest that, all told, 156 countries have had at least one ten-year period of price convergence without economic convergence since 1960.This pattern is ultimately compatible with Balassa’s and Samuelson’s theory. If a dynamic manufacturing sector was offset by a moribund services sector, a country could grow modestly overall, but still become more expensive. The price of services would rise quickly, pulled along by competition for labour from more productive manufacturing companies. Will China’s cheapness persist? That will depend not just on how fast it grows relative to America, but how fast its manufacturing grows relative to homebound industries. To close the GDP gap with America, China will have to narrow the price gap, too. ■Read more from Free exchange, our column on economics:Why people struggle to understand climate risk (Jul 13th)Erdoganomics is spreading across the world (Jul 6th)The working-from-home illusion fades (Jun 28th) More

Protests have a funny way of kicking off when the mercury soars. The summer of 1967 is best known as “the summer of love”. It was a time when hippies flocked to America’s west coast to protest war, take drugs and peace out. But it was also a time when more than 150 race riots struck everywhere from Atlanta to Boston amid brutal temperatures, earning the period another name: “The long, hot summer.” As the world warms, the link between heat and social disturbance is an increasingly important one and, this summer, an especially concerning one. Each upheaval has its own causes, but certain factors make disturbances more likely everywhere. Surging temperatures, rising food prices and cuts to public spending—three of the strongest predictors of turmoil—have driven estimates of the potential for unrest to unprecedented highs in recent months. These estimates will probably rise higher still this summer. Temperatures are unlikely to have peaked. Russia’s exit from the Black Sea Grain Initiative to export supplies from Ukraine and India’s recent ban on rice exports may raise the price of staples. Social unrest is already bubbling in Kenya, India, Israel and South Africa. The summer of our discontentIn the first week of July the mean global temperature crossed the 17°C threshold for the first time, reaching a steamy 17.08°C. The average global temperature for the month as a whole is poised to be warmer than the hottest previous single-day average on record. This sort of weather spells trouble. In a study published in Science, Marshall Burke of Stanford University and Solomon Hsiang and Edward Miguel of the University of California, Berkeley, show that an uptick in temperature of just one standard deviation above the long-term mean—the kind of deviation a statistician expects to observe about once every six days—drives an increase in the frequency of unrest of almost 15%.In the eight weeks since the start of June, the average global temperature has simmered at a consistent four to six standard deviations above levels recorded from 1980 to 2000. Our rough calculations, which extrapolate the relationship indicated in the Science study, suggest that record temperatures in June and July could have raised the global risk of violent social unrest by somewhere in the region of 50%. The effects of El Niño, a weather pattern that brings warmer temperatures worldwide and recently got under way, are likely to produce a scorching end to the northern summer and start to the southern summer. Indeed, the phenomenon has coincided with more than one-fifth of all civil conflicts that have taken place since 1950. Verisk Maplecroft, a risk-intelligence company, maintains a civil-unrest index that forecasts the potential for business disruption caused by social disturbances, including violent upheaval, on a country-by-country basis. According to the firm’s estimates, the risk of global social unrest in the third quarter of 2023 is the highest since the index was created in 2017. That is because of both heat and the higher cost of living, says Jimena Blanco, the firm’s lead analyst. “High rates of food price inflation are a particular risk,” she warns.Global inflation seems to have passed a peak, and international grain prices are lower than last year’s high. But that does not mean prices paid by consumers have stopped rising. In June annual food-price inflation was 17% in Britain, 14% in the eu and nearing 10% in Canada and Japan. It is higher still in many developing economies, especially those in Africa. Food-price inflation is close to 25% in Nigeria, 30% in Ethiopia and 65% in Egypt (the highest rate in the country’s history).Bread-and-butter issuesLower wholesale prices should in time feed through to consumers. But Russia’s choice to scupper the Black Sea Grain Initiative on July 17th, which was followed by four nights of attacks on the Ukrainian ports of Chornomorsk and Odessa in the Black Sea, has disturbed food markets, pushing prices in the opposite direction. Dry conditions elsewhere are also likely to exacerbate difficulties. Yields of Australian barley and wheat are forecast to decline by 34% and 30% this harvest. Stocks of American maize, wheat and sorghum are down by 6%, 17% and 51%. Last year these countries were the world’s two biggest exporters of the cereals by value.More concerning still are events in India, which produces roughly 40% of global rice exports, and has suffered from debilitating rains this year. On July 20th the government responded by banning exports of all non-Basmati rice from the country. This will reduce global rice exports by about 10%, with almost immediate effect. The United Nations Food and Agriculture Organisation estimates that together maize, rice and wheat provide more than two-fifths of the world’s calorific intake. Among the world’s poorest populations, the figure may rise to four-fifths. If prices do not start to fall soon, people will only get hungrier. And hungrier people are more likely to hit the streets.Fiscal austerity may further destabilise things. Many governments have committed to raising taxes or cutting expenditures in order to bring debt under control after lavish spending during covid-19. Jacopo Ponticelli of Northwestern University and Hans-Joachim Voth of the University of Zurich investigated almost a century of data from 25 European economies. They discovered that each additional 5% cut in government spending increases the frequency of social unrest by 28%. Social upheaval can have a scarring effect on economies, too. Metodij Hadzi-Vaskov, Samuel Pienknagura and Luca Ricci, all of the imf, recently looked at 35 years of quarterly data from 130 countries. They found that even 18 months after a moderate episode of social unrest a country’s gdp remains 0.2% lower. By contrast, 18 months after a major episode of unrest a country’s gdp remains 1% lower. Countries beyond the rich world have a more concerning outlook. The damage done by unrest is about twice as large in emerging markets as in advanced economies, according to the imf researchers, with lower business and consumer confidence, and heightened uncertainty, exacerbating the much greater risk of sudden capital flight. This bodes ill for what is set to be a year of rising food prices, boiling weather and spending cuts. Expect a long, hot, uncomfortable summer. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

UOB Q2 core net profit jumped 35% to 1.5 billion Singapore dollars from a year ago
UOB Q2 net interest income for the quarter grew 31% from a year ago
Loans will be repriced, UOB will be able to manage our cost of funding a lot stronger mainly because of the flight to quality for the Singapore depositors: CFO Lee Wai Fai

Singapore’s United Overseas Bank is expecting “some upside” in interest income in the next quarter, after the U.S. Federal Reserve announced a fresh rate hike overnight.
UOB’s core net profit jumped 35% to 1.5 billion Singapore dollars ($1.13 billion) in the second quarter from a year ago. Its net interest income for the quarter grew 31% from a year ago — boosted by robust net interest margin that expanded 50 basis points to 2.13% on higher interest rates, the Singapore-based lender said in a statement released early Thursday.

Net interest margin, a measure of lending profitability for banks, is the difference between interest earned and interest paid.
“We are hopeful that [net interest margins] will stay for the following quarter, with some upside biasness following this morning’s announcement by the Fed,” UOB chief financial officer Lee Wai Fai told CNBC’s JP Ong on “Street Signs Asia” in an exclusive interview Thursday.
Overnight on Wall Street, the Fed raised interest rates by 25 basis points, taking its benchmark borrowing costs to a target range of 5.25%-5.5% — the highest level in more than 22 years.
Financial markets had completely priced in the widely anticipated move. The midpoint of that target range would be the highest level for the benchmark rate since early 2001.

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Shares of UOB, one of Singapore’s largest lenders, rose 0.7% to a three-month high on Thursday.

The stock was broadly in line with the benchmark Straits Times Index in Singapore, and slightly below the 1% gain for the MSCI Asia ex-Japan.

Forward guidance

“We think that loans will be repriced and that we will be able to manage our cost of funding a lot stronger mainly because of the flight to quality for the Singapore depositors,” Lee said.
Southeast Asia’s third-largest lender said its loan-related and wealth management fees eased as investor sentiments remained subdued. These declines were partly offset by an increase in card fees, the bank added.
On Thursday, UOB lowered its guidance for fee income guidance to a high single digit growth, from a double-digit growth projection at its first quarter earnings announcement.

The United Overseas Bank logo is displayed atop UOB Plaza One in the central business district on February 23, 2021 in Singapore.
Nurphoto | Nurphoto | Getty Images

The bank’s projection for low to mid single-digit loan growth remains unchanged.
It now expects credit cost to hit around 25 basis points for the rest of the year, a slight increase from the previous projection of 20 to 25 basis points.
“We are hopeful that despite a challenging first half, second half will be a lot better. And with some of the reopening of the economy, some of the trade-related activities will pick up,” Lee told CNBC.
“We are expecting to see activity coming back, especially now people got used to the high interest rate environment … so we see some of those customers coming back into the market,” he said.
UOB is the first of Singapore’s three major banks to report its quarterly earnings. Singapore’s largest lender DBS will report Aug. 3, followed by Overseas-Chinese Banking Corp. on Aug. 4. More

BlackRock has joined forces with the financial services arm of India’s tycoon Mukesh Ambani in what’s been referred to as a “major move.”
BlackRock and Jio Financial Services, each plan to invest up to $150 million in the 50-50 venture, according to a statement on Wednesday.
The venture called Jio BlackRock “will place the combined strength and scale of both of our companies in the hands of millions of investors in India,” it added.

The BlackRock logo is displayed at their headquarters on November 14, 2022 in New York City. BlackRock and Saudi Arabia’s sovereign wealth fund signed an agreement to jointly explore infrastructure projects in the Middle East.
Leonardo Munoz | Getty Images

BlackRock has joined forces with the financial services arm of India’s tycoon Mukesh Ambani in what’s been referred to as a “major move.”
This paves the way for the world’s largest money manager to gain a foothold into the country’s fast growing asset management market.

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BlackRock, which had $9.4 trillion assets under management at the end of June, together with Jio Financial Services, each plan to invest up to $150 million in the 50-50 venture, according to a statement on Wednesday.
The joint venture will be called Jio BlackRock.
“Today marks a major move for BlackRock as we work to expand our footprint through a forthcoming joint venture in India with Jio Financial Services, a company built by Reliance Industries Limited,” said Larry Fink, chairman and CEO of BlackRock, in a post on his LinkedIn page.
Mukesh Ambani is the founder and chairman of Indian conglomerate Reliance Industries, the country’s largest listed company by market share. The billionaire mogul has been named India’s richest man in Forbes list with a net worth of $90.6 billion.

The partnership will “deliver our combined expertise and scale to unlock the power of investing for millions of people in India,” added Fink.

The convergence of rising affluence, favorable demographics and digital transformation across industries is reshaping the market in incredible ways.

Rachel Lord
head of Asia-Pacific, BlackRock

The news comes just days after Jio Financial Services was spun off from parent Reliance Industries conglomerate, according to Reuters.
The “digital-first” service will deliver “tech-enabled access to affordable, innovative investment solutions” for India’s investors, the statement said.
“The partnership will leverage BlackRock’s deep expertise in investment and risk management along with the technology capability and deep market expertise of JFS to drive digital delivery of products,” Hitesh Sethia, CEO of Jio Financial Services said.
The launch of the joint venture is subject to customary closing conditions and regulatory approvals.

Huge potential

The latest move is BlackRock’s second attempt to gain entry into India’s burgeoning asset management industry.
In 2018, the U.S. investment management firm exited India after being in business for a decade by selling its 40% stake in an asset management venture to partner DSP Group.
India represents an “enormously important opportunity,” said Rachel Lord, head of Asia-Pacific at BlackRock, in the statement.
Assets under management of Indian mutual funds doubled to 44.39 trillion rupees ($542 billion) in the five years to June this year, according to estimates from the Association of Mutual Funds in India.
“The convergence of rising affluence, favorable demographics and digital transformation across industries is reshaping the market in incredible ways,” Lord noted, adding the partnership will “revolutionize India’s asset management industry.” More

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.
China-focused venture capital and other private investment funds have seen such a slow start to the year they’re expected to drag down Asia-Pacific fundraising to the lowest in ten years, the report said.
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.

Jason Lee | Reuters

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.
The U.S. is also considering restrictions on investment in the most advanced Chinese technology.

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.

Read more about China from CNBC Pro

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.

“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.”
Notably, U.S. billionaire Warren Buffett increased investments in Japan this year.
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.” More