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In its Annual Economic Report, published on Sunday, the Bank for International Settlements (BIS), known as the central bank for central banks, warned that the enormous spending on AI is accumulating financial vulnerabilities that could amplify any future shock and spread from markets into the wider economy.

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Presenting the findings, BIS general manager Pablo Hernández de Cos said the message was one of “urgency”, with policymakers urged to act before any reversal makes the eventual adjustment more painful.

At the core of the warning is the scale of the spending, despite massive investment having supported global growth over the past year.

The five largest “hyperscalers”, the technology giants racing to build AI infrastructure, are on track to commit more than $1 trillion (€878bn) to AI-related investment across 2025 and 2026, a pace that is outstripping their earnings and free cash flow and pushing some to borrow heavily to keep up.

The BIS suggests this race is fuelled by a belief that only a handful of dominant players will ultimately prevail, encouraging firms to pour money into projects whose returns remain deeply uncertain.

Echoes of past manias

The report sets today’s AI boom against a long historical lineage, from the canal mania of the 1830s and Britain’s railway mania of the 1840s to the electrification of the 1920s and the dotcom bubble.

Each began with a genuine technological breakthrough that attracted more capital than commercial returns could justify, the BIS notes, with each episode ending “with an eventual reversal in investment, inducing economy-wide recessions”.

Compounding the danger are stretched share prices and opaque financing.

The BIS highlights the spread of “circular financing”, in which chipmakers and cloud giants take equity stakes in AI labs that then commit to buying their chips and computing power, effectively recycling money back to the original investors as revenue.

Much of the funding now flows through hedge funds and private credit vehicles that face lighter scrutiny than banks.

According to Zhang Tao, the BIS chief representative for Asia and the Pacific, that reliance on non-bank channels means an AI downturn could unwind into a sharper, faster crash than a traditional banking crisis.

The hidden costs of data centres

Beyond financial markets, critics argue the true cost of the AI build-out is being obscured in plain sight.

A central concern, examined by the Wall Street Journal, is how the technology giants account for their data centres.

By assuming the expensive equipment inside them will stay useful for longer, firms can spread its cost over more years, lowering the depreciation charged against profits in any given period and making earnings look healthier than the underlying cash burn implies.

However, the specialist chips at the heart of these facilities may become obsolete far faster than those extended schedules assume, leaving a gap between reported profits and economic reality, as well as a balance sheet more exposed than it appears should demand disappoint or a sizable need to replace hardware arise.

The physical scale is staggering.

Columbia University economist Stijn Van Nieuwerburgh estimates the build-out could cost in the region of $8 trillion (€7tn) over the next six years, financed in part through the kind of off-balance-sheet arrangements the BIS flagged.

The costs are also no longer confined to corporate accounts.

Some economists now warn of a so-called “third wave” of inflation, after the pandemic and tariffs, driven this time by the AI build-out. As chip manufacturers prioritise high-margin parts for AI servers, the resulting squeeze on memory and storage has rippled out to consumer electronics.

For example, Apple raised prices on its MacBooks, iPads and other devices last week, citing an “extraordinary surge in demand for memory and storage” and saying it had “never seen a component price increase this much, this quickly”.

The company’s shares fell around 6%, their worst day in over a year, as Microsoft, Nintendo and Sony have also made similar moves.

Beyond hidden costs and inflationary pressures, where the strain may spread furthest is raw power.

Goldman Sachs expects data centres to account for nearly half of the growth in US electricity demand by 2030, with consumer power prices forecast to rise around 6% a year through 2026 and 2027.

The BIS itself notes that the build-out’s hunger for electricity is already pressuring prices and input costs, with potential spillovers to inflation, though it stresses, as do many economists, that AI could yet prove disinflationary if its promised productivity gains eventually arrive.

Australian sixth seed Alex de Minaur was involved in the protests at last month’s French Open but decided he did not want to take part at Wimbledon.

“I think the sense that we had at Roland Garros was everyone was on board, even though we didn’t, as a collective, achieve the numbers that we were looking for,” he said.

“I thought that Wimbledon made a big step in the right direction, and something that should be noted. So this is for me to acknowledge their big step.”

Germany’s Alexander Zverev, who claimed his first major win in Paris earlier this month, also decided to step back.

“I still want to be part of the players’ movement, but also I realised the media can’t really do anything about it, or can’t really change it,” said Zverev, who represented the players in talks with the Grand Slams at Wimbledon last year.

“It’s not good to take it [out] on someone that doesn’t have the power of control, so I’m doing half an hour [of media]. But I still hope for some change in tennis, for sure.”

This year’s Wimbledon singles champions will each take home £3.6m, up from £3m last year, while first-round losers will earn £80,000.

Although increasingly limited, China’s dependencies on the EU in strategic technologies have not disappeared.

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In today’s increasingly tense geopolitical environment, closing this gap has become an urgent priority for Beijing. The country’s 15th Five-Year Plan, unveiled last March, places technological self-reliance at the heart of its industrial strategy through 2030.

In semiconductors, aerospace technologies, pharmaceuticals, automotive chips, robotics and quantum computing, European companies still supply products that remain essential to China.

As trade tensions with Beijing intensify, could these dependencies give Europe leverage? Most experts are sceptical. China’s monopoly over rare earths — essential for Europe’s green technologies and defence industry — is a far more powerful weapon that could be used in retaliation against the EU.

“China really has a choke point when it comes to minerals, but we don’t have an equivalent choke point, which is very powerful,” Tobias Gehrke, an expert at the European Council on Foreign Relations, told Euronews.

In some sectors, China may achieve self-reliance within just a few years, according to expert Sam Goodman in a report published in May for the Brussels-based Martens Centre.

Euronews examined those sectors. Here are the technologies in which China still remains dependent on the EU.

Semiconductors

In the semiconductor supply chain, the EU has a jewel : ASML, the Dutch company with the highest market valuation ever recorded by a European company, boasting a market capitalization of more than €630 billion in 2026.

The company holds a near-monopoly on extreme ultraviolet (EUV) lithography machines, which are essential for manufacturing advanced semiconductor chips used in artificial intelligence and electric vehicles.

China’s dependence on ASML has already been exploited by the United States and the Netherlands, which have restricted sales of the strategic technology to Beijing. But China can still buy less advanced deep ultraviolet lithography machines, a segment in which ASML holds almost 90% of the global market, according to Gehrke. In 2024, for some of those products, up to 70% of shipments went to China.

However, China is moving quickly to catch up. It now requires that 50% of equipment used in new chip production capacity be sourced domestically, Gehrke wrote in a report published in March.

“The Chinese have set a target that they want to start producing their own chips, not using ASML machines by 2028,” Goodman told Euronews. “But they’re still going to be dependent on ASML to learn.”

Maintenance and repair of installed equipment in China also account for a significant share of EU suppliers’ revenues.

In the event of EU restrictions on semiconductor exports, Gehrke forecasts “potentially large” economic damage to China, particularly if servicing were restricted, “but great spill-over risks,” as a significant share of ASML’s revenue is exposed.

Aerospace

The Comac C919 narrow-body airliner is China’s answer to the widely used passenger jets produced by U.S. manufacturer Boeing and European rival Airbus. But its supply chain remains heavily dependent on European companies.

Goodman lists several of them, including France’s Safran, which produces its engine, Germany’s Liebherr Aerospace, which supplies its cabin pressure system, and Italy’s Avio Aero, which manufactures the engine casing.

“Without the participation of these companies, China wouldn’t have a civil aviation programme,” Goodman said. “Civil aviation is very complicated to begin with, with safety standards very high; it takes a long time to get the know-how needed to do it.”

However, despite China’s dependence on European suppliers, any attempt to weaponise the supply chain could also come at a cost for Europe.

“It will hurt the bottom line of European aerospace suppliers which do very well out of China,” Goodman told Euronews. But he argues that the alternative is to “accept basically that China learn all our technology, create rivals and then destroy our market share”.

Competition between Chinese and European manufacturers is already intense.

A quiet battle is emerging over certification, with China seeking approval from the European Union Aviation Safety Agency (EASA) to allow the C919 to operate in Europe.

“This is a leverage for Europe which could politicise the process and refuse China’s aircraft certification”, Gehrke said. But Beijing is already playing the same game, slowing down the certification of new Airbus aircraft in China.

As of now, Airbus has more than 2,200 aircraft in service in mainland China, holding roughly a 55% market share.

Pharma and biotechnology

Europe still leads China in pharmaceutical patents. “In 2024, companies in Italy, Germany and France alone had double the number of pharmaceutical patents granted compared to China,” Goodman said.

The expert added that EU companies continue to dominate the vaccine market, with Germany’s Merck, France’s Sanofi and Britain’s GSK “accounting for 51 percent of global vaccine market share in 2024″.

However, according to figures from LEEM, the French pharmaceutical industry association, China’s R&D investment grew by 16.2% annually between 2020 and 2024—twice the pace of Europe—allowing it to account for more than one-third of new molecules produced by global pharmaceutical research in 2024.

Some EU companies have also established joint ventures and R&D partnerships to benefit from China’s research spending and lower manufacturing costs, including Germany’s Bayer and France’s Sanofi.

Which side benefits the most from joint ventures? “Always China,” Goodman said. “I’ve found no example of a joint venture between a Chinese company and a non-Chinese company where the non-Chinese company has benefited from technology transfer.”

When it comes to medical equipment, EU companies such as Siemens Healthineers and Philips remain global leaders in magnetic resonance imaging (MRI), although both have significantly expanded their manufacturing footprint in China.

“Local competitors are catching up rapidly,” Gehrke said, but he added that “there is still a gap in key upstream MRI components – such as superconducting magnets and image-processing software.”

Automotive chips

Chinese flagship automakers such as BYD and Chery also depend on European technologies, including chips from Germany’s Infineon, the Netherlands’ NXP and Franco-Italian STMicroelectronics.

China’s strategy is to become self-reliant in the sector, but Goodman said that the “domestic demand for EVs and the chips within them has meant that automotive companies in the PRC [People’s Republic of China] face an import substitution challenge”.

But the EU’s leadership in these niche technologies remains precarious.

“Europe is strong in mature automotive chips because they do produce power electronics sensors, but there are still very high vulnerabilities in certain parts of the supply chains, mainly in the back-end manufacturing part,” Giulia Albini from CLEPA, the European Association of Automotive Suppliers, told Euronews.

The EU depends on other regions—including China—for packaging, assembly and testing, as last year’s dispute over Dutch-based Nexperia, owned by China’s Wingtech, revealed. Following the Netherlands’ takeover of the company, China restricted chip exports to the EU.

Goodman added that the significant share of Chinese customers, as well as EU carmakers operating in China, makes it “unlikely that this leverage could be utilised”.

Robotics and quantum

Robots are China’s latest showcase of technological progress. Few will forget Chinese humanoid robots taking centre stage during televised Lunar New Year celebrations.

But Goodman said that a sizeable portion of the downstream supply chain, including the components that make the robots move, is produced by European companies, including Sweden’s Ewellix and Germany’s Rexroth.

“The leading Chinese humanoid robotic companies do not publish their supply chain for this very reason,” Goodman said.

However, he added that, in any case, the narrative of a self-sufficient Chinese humanoid robot sector “ready to take the world by storm” should be examined carefully.

When it comes to quantum computing, designed to carry out complex calculations faster than classical computers, Goodman said that China wants to keep working with Europeans to meet its industrial and commercialisation targets.

However, EU member states remain divided over the merits of partnering with China in what is regarded as the next major technological frontier after the AI boom.

“The French, the Dutch, the Germans have very rigorous export controls on materials that could be used for quantum computing by China, while the Spanish and the Italian have active projects with Chinese companies developing quantum in Europe,” Goodman said.

“Unless we have a unified approach, inevitably China is going to gain the system.”

Volkswagen (VWAGY)(VLKAF)(VWAPY) is preparing to end its partnership with automotive supplier Bosch on automated driving technology, according to a report by Germany’s Bild newspaper, as the carmaker intensifies efforts to reduce costs and improve competitiveness.

The collaboration, launched in 2022 between

Originally published in Spanish on Asdrúbal’s personal Substack

There are weeks that change a government. And there are weeks that change a country. This is one of them.

Until just a few days ago, the economic debate regarding Venezuela revolved around how much we would grow this year. Around whether the figure would be 4% or 6%, and at what point that growth would materialize in people’s daily lives: exchange rate stabilization, the reestablishment of relations with multilateral organizations, and the possibility of slowly beginning a recovery process.

On the morning of June 24th, a Financial Times scoop centered the discussion on the actual size of our foreign debt. That was the horizon. Today, the horizon no longer looks like that. The earthquakes that struck this week not only leave a human tragedy of dimensions still difficult to quantify; they also profoundly alter the country’s economic outlook. International evidence shows that a major earthquake can generate losses equivalent to between 3% and 10% of GDP, depending not only on physical damage but on the State’s capacity to respond.

Anyone who thinks the problem is limited to the cost of rebuilding highways, hospitals, or housing is seeing only a part of the picture. Earthquakes destroy infrastructure, but they also destroy productivity, employment, tax revenues, logistical chains, and confidence. Thousands of businesses interrupt operations, families postpone consumption and investment decisions, and economic activity loses momentum for months or even years. The expectations and decisions of economic agents are disrupted by a widespread sense of loss and uncertainty.

The economic literature is quite consistent on this point. Studies by the World Bank, the IMF, and numerous academic papers conclude that the impact of a natural disaster depends far less on the intensity of the phenomenon itself than on the institutional strength of the affected nation. Economies with solid States tend to absorb the initial shock and recover relatively quickly. Conversely, in fragile States, a natural disaster often mutates into a prolonged economic crisis because institutional weakness amplifies the damage and delays reconstruction.

The economic agenda will no longer be dominated exclusively by growth, but by reconstruction. We need to prevent the disaster from destroying a large part of Venezuela’s remaining physical and human capital.

That is precisely Venezuela’s primary challenge. Over the years, the country lost fiscal, technical, and operational capacity. This is not a political assessment, but an observable fact. The State’s capacity to design public policy has been significantly reduced. The prolonged economic crisis and hyperinflation led us to a state of “save yourself if you can.”

The difficulties in maintaining basic infrastructure, public utilities, or the hospital network were already evident before the earthquake. Rebuilding cities like La Guaira demands far more than financial resources: it requires planning, engineering, contracting capacity, technical supervision, and a public administration capable of coordinating thousands of projects simultaneously. Today, the Venezuelan State lacks a good portion of those capabilities.

Our recent history shows how society has demonstrated resilience where the State has lost capacity. The private sector, non-governmental organizations, churches, universities, and multiple civil society initiatives have, through years of crisis, developed a remarkable ability to organize, mobilize resources, and respond swiftly to emergencies. We saw it during the pandemic, during the landslides in Las Tejerías, and in so many other humanitarian crises. And we are seeing it now. This accumulated experience will be one of the most critical assets in confronting this tragedy, though on its own, it remains insufficient to undertake a reconstruction of this magnitude.

It would be a mistake to turn international aid into a battleground for confrontation. Venezuela doesn’t need speeches on sovereignty, but engineers, heavy machinery, hospitals, drinking water, electricity, and the capacity to rebuild.

That is why I maintain that this earthquake completely changes the economic conversation. Just a few weeks ago, we were discussing how to accelerate growth, attract investment, or deepen reforms. We argued that institutional reform was necessary for Venezuela to achieve sustained and inclusive growth. Today, the priority has shifted to preventing the disaster from destroying a large part of the country’s remaining physical and human capital. The economic agenda will no longer be dominated exclusively by growth, but by reconstruction.

An inevitable conclusion emerges from this: Venezuela cannot face this challenge alone. This is not merely a matter of securing financing. It will be indispensable to mobilize technical assistance, specialized teams, field hospitals, temporary infrastructure, fast-access credit, and international coordination mechanisms. International cooperation will cease to be a mere complement and will become a necessary condition for recovery.

There’s some good news, however: for the first time in many years, the conditions exist for such cooperation to be possible. The reestablishment of relations with international financial institutions opens a window that until a few months ago seemed firmly shut. It would be a mistake to turn this aid into a new battleground for political confrontation. Countries do not need speeches on sovereignty after an earthquake. They need engineers, heavy machinery, hospitals, drinking water, electricity, and the capacity to rebuild.

The country needs to design a roadmap to achieve broad political agreements, leading to a democratically elected government able to drive the necessary reforms.

Economic history demonstrates that major disasters can become turning points. Some countries seized these tragedies to modernize their infrastructure, strengthen their institutions, and build more resilient economies. Others remained trapped for decades in a cycle of destruction and precariousness. The difference was never solely the magnitude of the earthquake, but the quality of the collective response.

Beyond the immediate emergency, this tragedy also leaves a political lesson that is impossible to ignore. The reconstruction of Venezuela demands more than financial resources or international assistance. It requires leadership with democratic legitimacy and the capacity to build consensus. The country needs to design a roadmap to achieve broad political agreements, leading to a democratically elected government and providing it with the necessary backing to drive the economic and institutional reforms that recovery demands. No reconstruction program will be sustainable unless it rests upon legitimate institutions, clear rules, and a political pact that offers stability, generates trust, and allows for the mobilization of support from the international community and private investment.

That is why I believe this earthquake has not only moved the earth. It shifted Venezuela’s economic horizon. The projections we made just a week ago likely no longer describe the country we will have at the close of this year. The Venezuelan economy has just entered a new phase, and the speed with which we manage to combine the efforts of the State, the proven capacity of the private sector and civil society, and the decisive support of the international community will determine not only the economic performance of 2026, but the real possibilities for recovery over the next decade.

Los Angeles officials have reached a tentative agreement with organizers of the 2028 Olympic Games laying out the process for reimbursing the city for potentially hundreds of millions of dollars in public services.

The agreement, which still needs approval from Mayor Karen Bass and the City Council, would require the privately run Olympic organizing committee LA28 to provide the city with funding in advance to cover services that are ineligible for reimbursement from the federal government, such as traffic control and trash pickup.

The two parties would take a somewhat different approach for police protection at high-security venues. Under the proposed arrangement, the city would seek reimbursement from the federal government for security costs at those locations, said City Administrative Officer Matt Szabo, the city’s top negotiator.

If the federal government does not provide full reimbursement for those security costs, the city would seek to tap LA28’s contingency funds to cover the difference, Szabo said.

“This deal ensures the 2028 Games will have the City services needed to be safe and successful, while protecting the taxpayers from footing the bill,” he said in a statement.

Paul Krekorian, executive director for Bass’ Office of Major Events, praised the agreement.

“Mayor Bass’ priority is that the 2028 Olympic and Paralympic Games be fiscally responsible, protect taxpayers, and benefit Angelenos for decades to come,” he said. “This agreement helps deliver that commitment.”

Negotiations between the city and LA28 have played out behind closed doors over the last year, even as critics have grown increasingly vocal about the potential for taxpayers to be saddled with huge payouts if the Games fail to generate a profit. If organizers experience significant losses, the city would be on the hook for the first $270 million and possibly more after that.

Szabo acknowledged that under that scenario, the city would be far less likely to recoup all of its security costs if the federal government failed to provide full reimbursement.

Under an agreement finalized in 2021, the organizing committee must reimburse the city for any services that go beyond what would be provided on a normal day at a variety of locations, including parts of downtown L.A., Exposition Park, Venice and elsewhere.

President Trump’s “One Big Beautiful Bill” included $1 billion for security, planning and other costs associated with the Olympics. Nevertheless, some elected officials have voiced fears that money might not materialize once the Games are over, or that the city’s security expenses could exceed that amount.

The tentative deal, known as an Enhanced City Resources Master Agreement, goes before the council’s ad hoc committee on the Olympic Games on Tuesday, then to the full council.

Even with the agreement, many of the details surrounding taxpayer services during the Olympics and Paralympics will remain unresolved for at least a year.

The two sides still have to finalize agreements spelling out the services that will be provided at each venue by July 2027. They also must agree on the cost of those services by Oct. 31 of the same year.

According to a summary of the agreement released by the city Friday, Los Angeles World Airports, the Port of Los Angeles and the Department of Water and Power would need to enter into their own service agreements with LA28.

LA28 and the city were supposed to have a tentative agreement in place last fall. The negotiations dragged out for an additional nine months, in large part because of the “inherent complexity of the 2028 Games,” Szabo said in a memo he co-wrote with Sharon Tso, the city’s chief legislative analyst.

Under the terms of the 2021 agreement, LA28 must create a $270-million contingency fund that can be distributed as a surplus if the Games make money, or be used to cover any losses in the event of a shortfall.

The proposal unveiled Friday calls for the five-year-old agreement to be amended to ensure that those contingency funds can be used to cover the city’s costs in the event that other revenue is not enough to pay for certain city services provided during the Games.

The money from that contingency fund would be distributed to the city only after LA28 covers its own costs, according to the city’s summary.

If LA28 does make money, it would not be allowed to distribute its surplus funds to any other organization until after it has covered its financial obligations to the city, according to the tentative agreement.

Jacie Prieto Lopez, LA28’s vice president of communications and public affairs, said in a statement that her organization is pleased to forward the agreement to the council for consideration.

“We proudly stand behind this agreement which delivers on our commitment to execute a safe, secure, and fiscally responsible Games that benefits Los Angeles for decades to come,” she said.

Halfway through a turbulent year, a clear pattern has emerged across global markets: anything tied to the physical build-out of AI has soared, while several other assets that investors traditionally turn to in uncertain times have stumbled.

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War in the Middle East, political upheaval and an oil-price spike formed the backdrop, yet stock markets in several regions still pushed to fresh record highs.

According to Dan Coatsworth, head of markets at AJ Bell, companies on the receiving end of the AI spending boom were the standout investments of the first half, while Bitcoin proved “a shocker” and gold lost its shine.

It is, Coatsworth noted, a remarkable run of events for only half a year’s worth of trading.

The most spectacular gains came from an unglamorous corner of the technology world: the firms that make memory chips.

As demand for AI computing collided with tight supply, prices surged and took shares with them. SanDisk led the US market with a gain of over 850% in six months, while Western Digital, Micron Technology and Seagate Technology all more than tripled in value, a pace of return that would ordinarily take many years to achieve.

The driver is the vast quantity of high-speed memory and storage needed to train and run AI systems as the largest technology companies race to expand their data centres.

Other US equities that soared on the back of the AI trade include Intel, Dell, Advanced Micro Devices (AMD) and Applied Materials, which all rose between 150% and 280% year to date.

The rush also lifted emerging markets, where Asian chipmakers such as TSMC and SK Hynix carry heavy weight, helping South Korea’s KOSPI double in value, Japan’s Nikkei 225 climb roughly 40% and the MSCI Emerging Markets index rise by around 27%.

In Europe, the FTSE 100 gained 7% in the first half of the year, France’s CAC 40 rose 5%, while Germany’s DAX gained 2%. Meanwhile, the MSCI India index fell 5% and Hong Kong’s Hang Seng lost 6%.

Notably, the memory rally has begun to unwind in recent days, with several of the same names caught in a sharp technology sell-off.

The fallen favourites, takeovers and the trades that cooled

The flipside was brutal for yesterday’s winners.

Previous AI darlings Meta and Microsoft were left behind, down 14% and 24% respectively on a total-return basis, as heavy AI spending turned the technology giants into more capital-hungry businesses and investors stopped paying a premium for them.

Microsoft now trades at its cheapest level in a decade, leaving both it and Meta valued more modestly than McDonald’s, an outcome few would have predicted at the height of the “Magnificent 7” craze.

Elsewhere, the assets many expected to lead disappointed.

Gold took investors on a volatile ride. After surging to a record high of $5,594.82 an ounce on 29 January, the precious metal lost around 28% from its peak despite the geopolitical turmoil that would normally send investors flocking to safe-haven assets. Instead, its appeal was undermined by higher bond yields and cash rates, which offer an income that a gold bar cannot.

Bitcoin fared worse still, falling 28% since the start of the year as enthusiasm for crypto drained away and money rotated towards technology shares instead.

In the UK, takeovers did much of the heavy lifting.

Six FTSE 100 companies, among them Glencore, Schroders and Segro, attracted bid interest in the first half, a sign that buyers still see value in British blue chips even after a three-year re-rating.

Housebuilders such as Persimmon struggled against a sluggish property market, while tech-adjacent names like Experian and RELX were swept up in fears about AI disruption.

One trade that conspicuously cooled was defence.

After a storming 2025, the likes of BAE Systems, Germany’s Rheinmetall and America’s Palantir all gave ground, as the good news on rising military budgets looked fully priced in and investors drifted elsewhere.

This article does not constitute financial advice. Always do your own research and invest according to your specific circumstances.

Uzbekistan’s largest-ever public market transaction has highlighted growing investor interest in the country and its economic reforms, while shifting attention to the next stage of developing its financial markets.

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The listing of the National Investment Fund of Uzbekistan, managed by Franklin Templeton, raised more money than all previous IPOs in the country combined over the past 30 years, according to Marius Dan, Central Asia CEO at Templeton Global Investments.

For investors and market operators, the transaction has drawn attention to a wider issue: how Uzbekistan develops the rules, institutions and market depth needed to support capital markets, debt financing, venture capital and private investment.

“What investors really want to know is that they’ll put their money in and that they will get their money back,” Julia Hoggett, chief executive of the London Stock Exchange, told Euronews.

Hoggett said investors usually begin by looking at a country’s fundamentals, including currency stability, inflation, economic growth, population trends and assets, before turning to the regulatory environment.

Building the infrastructure behind investment

Uzbekistan is preparing new financial legislation as it seeks to expand the range of financing available to companies and investors.

Laziz Kudratov, the country’s minister of Investment, Industry and Trade, told Euronews that legislation establishing the Tashkent International Financial Centre is expected to be signed soon.

The project would create a separate jurisdiction based on common law principles. Kudratov said the aim is to give foreign financial companies a legal environment based on international standards rather than requiring them to operate solely through local legislation.

He also said the planned jurisdiction would include 50 years of tax incentives, including exemptions from corporate income tax, value-added tax (VAT), property tax and customs duties.

The government is also preparing legislation covering alternative investment structures, including venture capital, private equity and limited partner-general partner investment models.

“We are also coming up with a new law on alternative investments,” Kudratov said. “It will create a framework to protect venture capital, LP and GP investment, and private equity investment in Uzbekistan.”

Dan said the National Investment Fund listing showed that international investors were willing to participate when transactions were structured in the right way.

“The initial public offering of the National Investment Fund shows that, in the right structure, investors are very keen to participate in the capital markets of the country,” he said.

Creating a deeper market

Dan said Uzbekistan’s capital market would need more companies, greater liquidity and more foreign institutional investors in the coming years.

He said continued listings of state-owned enterprises, both within and outside the National Investment Fund’s portfolio, would be important in broadening the investment universe.

Local debt markets are also beginning to attract more attention, he said, with retail investors looking more closely at investment opportunities inside Uzbekistan.

Kudratov said reforms introduced since 2017 had changed the investment environment through tax reforms, currency liberalisation and the removal of restrictions on profit repatriation.

“Any investor can come, invest and get their revenues out of the country within one day,” he said.

For Hoggett, investor confidence also depends on a proven track record.

“You can’t change things overnight and say people need to believe it. They need the evidence to see it,” she said.

Broadening participation

The growth of local debt markets and the entry of more retail investors are early signs that Uzbekistan’s financial market is beginning to widen beyond foreign institutional capital, according to Dan.

Hoggett said public markets can play a wider role by opening investment opportunities to more participants.

“The public markets are democratising,” she said.

Hoggett added that private companies are often owned by a relatively small group of investors, while public markets allow a broader range of investors to access company growth. That wider access comes with stronger disclosure requirements for issuers.

For Uzbekistan, broader participation would mean more than attracting foreign capital. It would also involve creating opportunities for domestic investors to participate in the growth of listed companies, debt markets and other financial products.

Governance and market discipline

Governance remains central to the development of Uzbekistan’s capital markets.

Dan said several companies within the National Investment Fund’s portfolio had already introduced board-level changes, including the appointment of independent directors.

“Corporate governance is key,” he said.

He described stronger oversight of state-owned companies as part of improving their operations.

Hoggett said public markets also impose discipline on companies seeking capital.

“The first rule of doing an IPO is meet your estimates, hit what you say you’re going to do,” she said.

That requires companies to build systems, controls, accounting capacity, finance teams and planning processes, she said. Hoggett added that such structures can help companies operate at scale and grow faster.

SACRAMENTO — Gov. Gavin Newsom reached an agreement Friday with legislative leaders on a $351.7-billion state budget in his final year as governor, a spending plan that uses a tax windfall to avoid major cuts and lessen California’s chronic deficit in the years ahead.

The deal provides nearly $2 billion in state revenue next year through tax hikes on corporations, new levies on software sales and a revamped tax on managed healthcare organizations. Lawmakers and the governor continue major investments in education, healthcare and agreed to increase spending on subsidized childcare and affordable housing.

“We want to leave the next governor not only a balanced budget, but a budget that is substantially structurally sound, and we’re going to accomplish that,” Newsom said in an interview Friday. “We were very cautious in terms of new spending,”

The agreement ends weeks of lobbying by outside interests and negotiations among lawmakers and the governor at the state Capitol about how to handle a surge of income tax collected on stock market gains related to artificial intelligence.

Early forecasts last June projected a $12.6-billion deficit in 2026-27, according to the California Department of Finance. Updated predictions now suggest the state will end the year with a surplus of $4.5 billion.

Democrats, following Newsom’s lead, are tucking away $6.4 billion for future years, which allows the governor to knock down a deficit previously projected through 2027-28 and assuage criticism about his spending habits.

But economists say the fix and revenue increase is likely only temporary.

Spending in California has generally exceeded revenue growth during Newsom’s tenure in the governor’s office, creating a chronic shortfall. Despite the extra funding, the budget continues a trend of relying on reserves, shifting funds, borrowing and suspending debt payments to balance state spending.

The Legislative Analyst’s Office, the nonpartisan fiscal advisor for lawmakers, has warned of a roughly $10-billion gap between the amount of money the state brings in and spends, which could grow dramatically worse if the stock market turns downward. The LAO has said the existence of any operating deficit during a revenue boom is a red flag and that the state is “ill-prepared” for even a modest decline.

Christopher Thornberg, an economist and founder of the consulting firm Beacon Economics, said it’s business as usual in Sacramento.

“They love increasing spending. But it seems politically impossible to go the other way,” Thornberg said. “We’ve seen this play out over and over again.”

Lawmakers and the governor offered a different take and asserted that their decision to put the $6.4 billion into a short-term reserve, called the Projected Surplus Temporary Holding Account, and ask voters to allow them to store more money in the rainy day fund are examples of prudent budgeting.

“You see us save more and you see try to address the immediate needs of our community, but also the structural budget that potentially awaits us,” said Senate President Pro Tem Monique Limón (D-Goleta) in an interview. “We are forecasting a moment where we will need to address these issues and we want to start now to think about the future as well.”

Under a progressive tax structure, the state budget is dependent on income taxes paid by the ultra-rich on earnings largely from capital gains. The set up leaves California vulnerable to the unpredictable nature of the stock market, dramatic swings in revenue and, in recent years, reliant on poor projections.

Negotiations at the state Capitol included an agreement on a constitutional amendment that seeks to offset the revenue highs and lows.

If approved by voters on the statewide ballot in November, the amendment would raise a cap on mandatory deposits into the rainy day fund from 10% to 20% of general fund revenue. The measure would also allow lawmakers to exempt money they put into the rainy day fund and the temporary holding account from state spending limits.

Under an existing state appropriations restraint, also known as the Gann Limit, lawmakers cannot spend more than an amount determined by a formula that takes annual tax proceeds, changes to the population and cost of living into consideration. Tax revenue above the limit must be divided between schools and refunds to taxpayers.

With few exceptions, the limit applies to most appropriations of tax revenue, including when lawmakers put money away in the rainy day fund and other reserves.

Newsom said the change will leave the state in a much better position to weather the volatility. Though calls for tax reform remain in California, the governor said being able to place more money into the reserves could ultimately solve the state’s budget challenges.

“The one thing missing is the one thing that I think we finally landed, which is the change in the reserves,” Newsom said. “It changes the political dynamic, where now you’re not exchanging general fund priorities.”

Republicans criticized the proposed constitutional amendment, which passed in a budget trailer bill this week, for failing to require that excess revenue pays down the state’s $22 billion in unemployment insurance debt.

State Sen. Tony Strickland (R-Huntington Beach) called it a missed opportunity.

“It does not require debt payment to go to the UI debt,” Strickland said. “It facilitates more spending, exempting reserve deposits from the state spending limit.”

As part of the negotiations, lawmakers agreed to delay some healthcare cuts that would have required monthly premiums for immigrants and eliminated dental care. The deal adopts a Medi-Cal asset test of $21,000 on July 1, 2027, instead of a $2,000.

The budget agreement includes a provision requiring California’s next governor to develop options to reduce taxpayer subsidies for corporations whose employees receive state-sponsored healthcare through Medi-Cal instead of the company’s health plan. The plan is aimed at raising revenue to offset federal cuts that are expected to leave millions of Californians without access to healthcare.

The California Department of Finance said state reserves are expected to total $28.8 billion under the 2026-27 budget.