Will DeepSeek deep-six the US economy? – Asia Times

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By selling technology companies to immigrants, America has financed a current account deficit that soared to US$ 1.2 trillion in 2024. Tech stocks, however, are trading at valuations not seen since 2000, when the NASDAQ Composite began a descent that wiped out 75 % of its market capitalization by 2002.

If expectations deteriorate regarding synthetic intelligence’s ability to generate revenue, was a technology crash lead to a financing crisis for the United States? The question of the January 27 collision in AI-related stocks in response to less expensive and more effective Chinese rivals still lingers. Every capital investment in the world pays close attention to these issues.

Graphic: Asia Times

Europeans stopped buying US debts of all kinds – Treasury, loan, and business – after the post-Covid prices of 2021 and the Federal Reserve’s subsequent rise in interest rates. That signaled the end of a 40-year bulls industry in US securities. From a 1981 peak of 15 %, the US 30-year bond yield fell in a nearly straight line to an August 2020 low of just 1.41 %.

The inflationary wave of 2021-2022 put an end to this bull work. In March 2022, moreover, the US and its allies seized half of Russia’s$ 600 billion in foreign exchange reserves, prompting other central banks to shift away from US Treasury securities to gold and other assets.

However, the world’s appetite for American tech stocks has been stagnant for the past ten years, which was rekindled by the development of Large Language Models ( LLMs) last year. Are raised valuations for AI-related shares justified? Which two aspects affect how quickly and which industries are most likely to make money from AI?

China’s DeepSeek R1 type appears to have made a model performance discovery: tale layout and related improvements reduce the amount of processing required by one or two orders of magnitude.

DeepSeek, also, offers its unit at a small fraction of the price that its US competitors then charge. That is not always detrimental to the overall US tech sector. If China has a better systems, US companies may choose it speedily, and lower costs for AI simulation does benefit the users of AI models.

US and China compete in seven distinct subcategories of AI uses. China leads most of them, and its Artificial skills are likely to strengthen it. They are

  1. Manufacturing: China has poured huge resources into stock technology. One test is the number of companies outfitted with devoted 5G systems, which support AI applications. China claims 10, 000 for installations, while the US has only a few hundred, concentrated in the automobile industry. The benefit is enormously advantageous for China, and breakthroughs in AI are likely to help. However, US production has had a small influence on equity valuations.
  2. Internet of Things: China is back in simplifying vehicles and warehousing, with entirely mechanical stores now in operation.
  3. China is now a major manufacturer of professional computers, installing more industrial computers each year than the rest of the world combined.
  4. China leads the so-called low level market, which was first cited by federal planners in a December 2024 working papers. Drone taxis, drone deliveries, and other applications are currently a$ 100 billion industry in China, and they are projected to double by 2026.
  5. Autonomous cars: We’ll call this a toss-up between the US and China, although China now has autonomous car companies operating on a smaller scale.
  6. Huge Language Models: afterwards, a toss-up. The Philippines ‘$ 40 billion call center business, which saw the most potential gain from AI systems, includes the gains made by LLMs. However, at this point, there are no guarantees that Bachelor applications will be approved for all of their possibilities because they are so varied and extensive.
  7. Biotech: The US has a distinctive advantage with a powerful medical development system. China has a direct in health statistics, but America’s advanced of large pharmaceutical companies, businesses and venture entrepreneurs give it an edge.

The big question is about LLM’s timing. Although the payoff might be significant, it may not be as quick as anticipated.

LLM deployment in the enterprise still has little to do with organizational performance and human adaptation ( management buy-in, workflow adjustments, etc. ). seems to be years away. Cost savings for specific categories of expenses, such as call centers or repetitive coding tasks, may be easily realized. However, the development of AI for higher-skill work is still in its infancy.

What does this mean for Nvidia’s chipmakers? On the assumption that Nvidia GPUs will provide a lot of this activity, one could argue a bullish case for Nvidia based on all of the AI sectors listed above. However, this hypothesis requires closer scrutiny of Nvidia’s competitive advantages.

Nvidia has a greater advantage in computation when training language and vision models, but less so when inference ( running the resulting models to get useful results ) is at its disposal. Notably, Huawei’s Ascend AI chips already perform fairly well with the new DeepSeek models, with comparable or even better cost performance than the weakened Nvidia H800s ( the weakened Nvidia chip that was cleared for export to China ) &nbsp.

Additionally, the case that the top US tech companies ( the so-called Magnificent Seven ) will control equity returns going forward is much weaker than the market is currently perceptive of it. If we are right, and tech market valuations shrink to some significant extent, what are the macroeconomic implications? Key capital flows are more dependent on a small number of very large companies than at any other time in US history.

Let’s say foreigners reduced their purchases of tech stocks as the value of the stocks declines. The United States would need to sell more bonds to both domestic and foreign investors to pay off its current account deficit and federal budget deficit. The chart below shows the amount of new Treasury debt bought by US banks, US households, foreign official institutions, and foreign private investors, respectively.

Banks stepped in and reabsorbed the$ 4 trillion in Covid subsidies that were funded by the Treasury debt, but by 2023 they had exhausted their savings deposits. Households, who were drawn to the higher interest rates on Treasuries, saw the biggest increase in new investment in Treasury securities. Additionally, foreign private investors decreased their Treasury holdings. &nbsp,

A full-blown financial crisis is most unlikely. The cash-burning dotcoms of 2000 have been replaced by cash-rich monopolies like Microsoft, Google, Apple, Amazon and Meta. By offering higher bond yields to domestic and international investors, the United States can adjust to an air-pocket in the demand for its tech stocks.

However, the DeepSeek shock exposes flaws in Big Tech’s core strategies as well as in the stratospheric valuation of its best-performing stocks. The outcome is likely to be a combination of persistently higher interest rates, slower growth, a decline in wealth, and strong economic headwinds.

Graphic: Asia Times

The S&amp, P’s technology sector, correspondingly, trades at a P/E of 37, compared to an overall P/E for the S&amp, P 500 of 26. That accounts for the largest portion of the difference between the lofty valuations of American stocks and those of European, Japanese, and Chinese stocks.

Graphic: Asia Times

A brass-tacks gauge of equity valuation is the free cash flow (FCF ) yield, namely the ratio of cash income to market price. Investors accept less current income because they anticipate higher income in the future, the higher the FCF is expected to be. For the S&amp, P 500 as a whole, FCF is below 3, a level not seen since the eve of the tech stock crash of 2000.

Graphic: Asia Times

For a monopoly like Microsoft, the free cash flow yield has fallen to just 2, the lowest on record.

Graphic: Asia Times

Between 2020 and 2024, Big Tech invested more than double in capital expenditures, and it is still investing heavily in AI-supporting data centers. The DeepSeek shock raises questions about the viability of these plans economically: If Chinese developers can create cutting-edge models using innovative model architecture designs, the raw computing power under development could be significantly overvalued.

Graphic: Asia Times
Graphic: Asia Times

To entice price-sensitive buyers into the Treasury market, the US government—still running a record peacetime non-recession deficit of 6 % to 7 % of GDP—probably will have to offer higher yields. That’s a problem for the economy and also a problem for the Treasury, which is already paying$ 1 trillion a year in interest, nearly quadruple the service cost of America’s national debt in 2020.

It also puts a headwind in front of the US economy for interest-sensitive activity, particularly housing. Longer-term, the US runs the risk of an Italian-style spiral, in which the rising cost of debt service eats away at the budget and limits what the federal government can do to support the economy.

Steve Hsu is professor of theoretical physics and of computational mathematics, science, and engineering at Michigan State University, and the founder of several AI startups. Follow him on X at @hsu_steve. David P. Goldman serves as Asia Times ‘ deputy editor. Follow him on X at @davidpgoldman

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Western private equity firms return to Japan – Asia Times

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They’re again. After a break earlier in the new millennium, American private equity firms are increasingly&nbsp, targeting Japan for their Eastern investment techniques. And the Chinese government and regulators have taken bold steps to welcome them and help make Tokyo Tokyo the world’s first global financial hub.

Back in the late 1990s and early&nbsp, 2000s&nbsp, Japan was a favored destination for European alternative property managers. In 1999, for example, Newbridge Capital, co-founded by Texas Pacific Group ( then TPG), took a lot interest in&nbsp, the online service provider&nbsp, Livedoor. &nbsp,

And, in 2000, J. Christopher Flowers and Ripplewood Holdings organized a consortium of investors to purchase Japan’s distressed Long Term Credit Bank, renaming it Shinsei ( translation: &nbsp, “rebirth” ). After Shinsei went public in 2004, the bargain was commonly regarded as one of the most successful private equity investments ever, both in Asia and in the early days of private equity investment. &nbsp,

Curiosity Waned&nbsp, &nbsp,

But by the time of the Great Financial Crisis, American businesses began to find other Asian nations, &nbsp, most notably&nbsp, China and South Korea, &nbsp, more open and welcoming –countries&nbsp, where owners could achieve greater financial returns with fewer regulation roadblocks.

While American investors retreated, Eastern PE money continued to undertake to Japan. The Eastern PE large PAG continued to build its staff and&nbsp, investments&nbsp, in Tokyo. The company bought Universal Studios Japan in 2015 and reportedly exited three years later with&nbsp, a&nbsp, five-times&nbsp, return&nbsp, on&nbsp, their purchase. &nbsp, PAG ‘s&nbsp, most significant investment of late&nbsp, is&nbsp, the&nbsp, largest theme park by physical size, Nagasaki’s Huis Ten Bosch.

Nagasaki’s Huis Ten Bosch topic area. Photo: Japan Guide

One industry observer&nbsp, told Asia Times&nbsp, that&nbsp, while, about a decade ago, &nbsp, there were a few&nbsp, of&nbsp, what he calls&nbsp, one-off “predecessor transactions” &nbsp, by mega&nbsp, global&nbsp, funds &nbsp, including KKR and Bain, &nbsp, Western PE firms&nbsp, had&nbsp, largely&nbsp, remained circumspect&nbsp, about Japan&nbsp, – at least &nbsp, until recently&nbsp, when&nbsp, the country &nbsp, made a conscientious effort to win them back by committing to a series of sweeping&nbsp, regulatory initiatives. These included:

•&nbsp, Implementation of the Corporate Governance Code ( 2015, revisions in 2018 and 2021 ): &nbsp, Introduced to improve transparency, accountability, and decision-making in Japanese corporations, which aligns with international standards, the&nbsp, code encourages companies to have more independent directors&nbsp, to provide companies&nbsp, an outside perspective&nbsp, and&nbsp, commitment to shareholder&nbsp, rights, making Japanese companies more attractive to foreign investors, including PE firms.

The Stewardship Code’s implementation ( 2014, revised 2020 ): This code encourages institutional investors to work with the companies they invest in more, putting an emphasis on shareholder returns and sustainable growth. American PE firms discover working with shareholders that promote the implementation of value-adding techniques.

•&nbsp, Tokyo Stock Exchange&nbsp, market restructure ( 2022 ): &nbsp, This initiative simplified and restructured the TSE into three new segments: Prime, Standard, and Growth Markets. By highlighting encouraging growth sectors, the restructuring aims to define market dynamics, boost market visibility, and draw in foreign investors.

•&nbsp, Guidelines for Corporate Takeovers&nbsp, ( 2023 ): &nbsp, This bold action by The Ministry of Economy, Trade and Industry ( METI ) &nbsp, is designed&nbsp, to facilitate mergers and acquisitions ( including hostile takeovers ), recognizing them as critical to business revitalization and growth. The 2023 Guidelines aim to improve Chinese people M&amp, A practices by incorporating principles like shareholders ‘ intentions and the union’s fiduciary responsibility to make the Asian business manage business more visible to international clients. &nbsp, This directly benefits private equity firms, which&nbsp, are a major driver of email M&amp, A&nbsp, and as a” white hero” alternative to hostile protesters.

Business observers&nbsp, today&nbsp, say the governmental change toward&nbsp, encouraging&nbsp, greater foreign investment is also aided by a poor yen and persistently low interest rates.

Solid rise

The&nbsp, effect on&nbsp, offer growth has been&nbsp, remarkable. &nbsp, The&nbsp, Japanese&nbsp, Private Equity Association and the Japanese Venture Capital Association &nbsp, track the number of&nbsp, private equity&nbsp, offers in the country as well as the price of&nbsp, those&nbsp, purchases. In 2020, &nbsp, there were 96 personal equity&nbsp, deals valued at&nbsp, 1.2&nbsp, trillion renminbi. By 2023, &nbsp, the&nbsp, deal&nbsp, figures and length had jumped to 125 private equity deals valued at 5.9&nbsp, trillion renminbi.

Expediting the re-entry of&nbsp, western&nbsp, secret equity&nbsp, firms&nbsp, has fallen mostly to FinCity Tokyo, founded in 2019. FinCity Tokyo, &nbsp, a public-private&nbsp, engagement, &nbsp, was created to support &nbsp, owners understand and improve value in the novel regulatory environment. &nbsp, Its&nbsp, stated aim is&nbsp, making&nbsp, Japan’s capital&nbsp, an “international monetary centre”.

To do so, &nbsp, FinCity Tokyo&nbsp, coordinates with the government of Japan, the Tokyo Metropolitan Government&nbsp, and 57&nbsp, part companies including business associations, major financial institutions, international investors&nbsp, and&nbsp, service&nbsp, services. The&nbsp, organization&nbsp, also&nbsp, provides proper assistance to&nbsp, financial&nbsp, firms&nbsp, seeking to&nbsp, enter and&nbsp, operate smoothly&nbsp, in Japan. Since 2022, it has helped nine global companies, with goods of almost$ 1.3 trillion, &nbsp, to successfully activate and engage in Japan. &nbsp, &nbsp,

FinCity Tokyo ‘s&nbsp, Executive Director Keiichi Aritomo&nbsp, says one of its tasks is helping international investors secure workers in a tight labour market. The company even covers the costs of hiring new PE investors in search of qualified workers.

Accepting non-family control

The failure of&nbsp, Japanese business owners&nbsp, to establish family succession&nbsp, plans&nbsp, used to strike Western investors as a stigma, &nbsp, but owners now&nbsp, have come to&nbsp, welcome&nbsp, external ownership and professional management by Western buyers. Or, as Aritomo of FinCity Tokyo writes, “private equity firms provide the experience to offset labor shortage with skilled management and productivity gains.”

Bain &amp, Company, in a report published last spring, &nbsp, said&nbsp, that Japan was the leading deal market in Asia-Pacific in 2023&nbsp, with private deals as the dominant strategy, noting “more companies are preferring to go private”. And&nbsp, the&nbsp, capital&nbsp, needed&nbsp, to complete deals via limited partnerships is plentiful. ” There is increasing LP appetite for Japan”, noted Sebastien Lamy, co-head of Bain &amp, Company’s Tokyo-based Asia Pacific PE practice.

PE firm&nbsp, Carlyle, based in Washinton, DC, with investments and operations&nbsp, globally, &nbsp, is&nbsp, also focused on&nbsp, Japan. &nbsp, In a report last September, the firm pointed to the positive regulatory changes, the attractive valuations, the stable political climate and the continued investment opportunities. ” We are seeing many overseas GPs]general partners ] establish offices in Japan for the first time” ,&nbsp, the firm said.

And, in an analysis last year, &nbsp, the management consulting firm, &nbsp, McKinsey&nbsp, &amp, Company, &nbsp, noted that, &nbsp, while&nbsp, Japanese&nbsp, private equity&nbsp, is&nbsp, a growing presence in the financial landscape, the industry still has &nbsp, more room&nbsp, to grow.

Increasingly, western private equity players&nbsp, have gotten&nbsp, the message.

Owen Blicksilver is a private equity-focused public relations executive in New York.

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BII, FMO and SUSI partners team up to support SEA’s energy transition | FinanceAsia

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British International Investment ( BII ), the UK’s development finance institution and impact investor, has announced the launch of Sustainable Asia Renewable Assets ( SARA ), a new utility-scale renewable energy platform. SUSI Partners and Dutch growth bank FMO have been co-founded by SARA.

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Gold glitters at end of the world as we know it – Asia Times

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Shareholders have been betting tremendously on an AI-driven coming over the past two decades, as tech stocks have led the S&amp, P 500 to a 60 % get. But they also bought the “barbarous artifact” of a financial era that preceded the economy’s identity, pushing the price of silver up by almost as much. Importantly, gold outperformed other hedges by a sizable percentage against the buck.

Why wall against severe distress amid effervescent tech-driven optimism? The answer is a bit could get wrong—catastrophically wrong, in reality. The dollar-based global economic system’s core asset is then tech stocks. The United States has sold US$ 24 trillion more of its property to immigrants than Americans have sold to immigrants.

Graphic: Asia Times

That” net international investment position” of$ 24 trillion, up from$ 18 trillion at the end of Donald Trump’s first term in office, paid for America’s cumulative trade deficit over the past 30 years. For the past 10 years, immigrants have been buying stocks rather than US Treasury bonds, as in the history.

US federal loan is now lower than it was five years ago, thanks to international central banks. If the technology bubble turns out to be a balloon, so will the US dollar. The death of the money may depend on the competition for market share for AI. If, for example, China’s open-source DeepSeek beats ChatGPT and the other British large language concepts, tech shares was tank and, with them, the money.

Graphic: Asia Times

There are many different ways to protect against the money. Some of them are interesting. An American budget deficit of 6 % to 7 % without a war or recession, as incoming Treasury Secretary Scott Bessent told Congress last week, is without precedent. But the currency’s position as a reserve money means that America has first rights on the nation’s capital.

The inflation-indexed US Treasury yields surge, partially fueled by hopes for a higher US gap under Trump, propelled the dollar higher against all major currencies. If US prices increases, so does US interest charges, and the economy’s transfer rate will rise against other currencies, even while the money loses value.

Graphic: Asia Times

But even while all currencies sank against the dollar in response to rising “real” ( inflation-indexed ) Treasury yields, gold rose, breaking a pattern that prevailed from 2007 through 2022.

Graphic: Asia Times

The US and its supporters seized Russian resources in March 2022, breaking the long-term connection between TIPS and metal. China, Saudi Arabia, India, and other central banks slowly shifted resources away from Treasuries into silver. On paper, TIPS and silver offer similar payments: If the money tanks and US prices increase, both assets may gain value.

The distinction is that the Treasury cannot acquire central bank vault gold in the same way it is acquire central banks holdings of its own obligations. Up to 80 basis points ( 0.8 % ) of the rise in TIPS yields during the past six months, I showed in a January 10 analysis, can be attributed to foreign central banks ‘ sales of US Treasury securities.

The hedge fund group has turned northern banks into gold. The price of real gold and the option price on the gold price are both affected by a shift in the relationship. Implied volatility is a standardized measure of the cost of metal choices, and under normal conditions, it falls as the gold rate rises.

That’s because silver mining companies have been the biggest consumers of golden choices, when the gold rate falls, they buy alternatives to lock in their revenue, and vice versa. But in 2024, something fresh happened: The cost of gold possibilities rose along with the golden value.

The gold implied volatility against price forms a” V” in the scatter chart below. That indicates that hedge funds placed wagers on a rise in silver prices.

Graphic: Asia Times

Gold is a standout in the complex of options on macro variables ( stocks, currencies, bonds, and commodities ). While other markets are softer in terms of risk and the price of gold options ( implied volatility ) is trading at a two-year high.

Graphic: Asia Times

Gold’s virtue is that it has a government decree-free value; it is the only form of currency that can be accepted if all else fails. It is the economic resource of last resort. With some exceptions, the bill of nearly all of the major markets has increased alarmingly in relation to economic output over the past ten years.

President Trump is walking a rope, trying to stimulate financial growth through tax breaks while juggling a document non-war, non-recession budget gap. The dangerous nature of this is heightened by Gold’s outperformance.

Observe David P Goldman on X at @davidpgoldman

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Muzinich & Co appoints director in Asia | FinanceAsia

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Private credit specialist Muzinich & Co. has appointed of Pam Hsieh as director – marketing & client relations.

Hsieh (pictured), based in Singapore, will focus on developing the firm’s relationships with financial intermediaries and wealth managers across Taiwan, Hong Kong and Singapore, according to a January 6 media release.

In her new role, Hsieh will report to Sashi Nambiar, head of financial intermediaries and wealth, Asia. She has over a decade of experience in asset management and wealth management, having held senior positions at Fidelity and BlackRock in Taiwan, most recently as vice president, wealth at BlackRock.

Nambiar said in the media release: “We welcome Pam to Muzinich at a time of growing interest in both public and private credit solutions among Asian investors. Her deep understanding of the wealth market and strong track record of building relationships with financial intermediaries will be invaluable as we continue to expand our presence in the region.”

Andrew Tan, chief executive officer, Asia Pacific (Apac), Muzinich & Co., added: “Pam’s appointment demonstrates our commitment to building a strong presence across both institutional and wealth management segments in Apac.”

Tan continued: “As Asian investors increasingly seek to diversify their portfolios through credit solutions, we are strategically expanding our team to better serve their evolving needs while maintaining our focus on delivering excellence in credit investing.”

The appointment follows a partnership with First Bank to bring its “parallel” lending strategy, MLoan, to the Taiwanese market.

And In September, Muzinich announced a partnership with Hong Kong’s Orion3 to launch an up to $1 billion infrastructure and real assets private debt strategy targeting several key markets in Apac. 

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