Following on "US plan to delist Chinese stocks may make Hong Kong great again as IPO hub, bankers say".
From the South China Morning Post, April 14:
‘Extreme’ US-China decoupling could cost US$2.5 trillion in equity, bond sell-off: Goldman
Threat of decoupling emerged after Treasury Secretary Scott Bessent said delisting of US-traded Chinese companies was back on the table
A decoupling between the world’s two largest capital markets could cost US$2.5 trillion in an extreme scenario, as investors from the US and China are forced to divest their holdings of equities and debt instruments, according to an analysis by Goldman Sachs.
US investors could be forced to sell nearly US$800 billion of Chinese stocks trading on American exchanges in case of a decoupling, the US investment bank’s analysts led by Kinger Lau and Timothy Moe said in a report on Monday. On the flip side, China could liquidate its US Treasury and equity holdings amounting to US$1.3 trillion and US$370 billion, respectively.
The sell-off was based on the assumption that US investors would be restricted by US regulations from such investments, they said.
The risk of US-China decoupling has shown signs of spreading beyond trade after Treasury Secretary Scott Bessent said the option of delisting US-traded Chinese companies was on the table amid a tit-for-tat tariff war between the two nations. The Trump administration has slapped a 145 per cent duty on exports from China, while Beijing has struck back with a 125 per cent levy on all US imports and another 20 per cent on selected American goods.
“In the capital markets, equity investors are very focused on the renewed risk of Chinese ADR [American depositary receipt] delisting,” Goldman analysts said in the report.
Should the threat become a reality, it will affect nearly 300 companies, including some of China’s biggest technology companies. As of March 7, 286 mainland Chinese companies were listed on the New York Stock Exchange (NYSE), the NYSE American and the Nasdaq, with a combined market capitalisation of US$1.1 trillion, according to the US-China Economic and Security Review Commission.
The delisting of Chinese companies from the US could have significant fundamental implications, including reduced access to the deeper capital pool in the US, potentially lower valuation multiples due to loss of investor base and lower liquidity, according to James Wang, head of China strategy at UBS Investment Bank Research.
“Nevertheless, we note that capital raising from ADRs has diminished in recent years while Hong Kong’s role has increased,” he added.
Alibaba Group Holding is the biggest US-listed Chinese firm, with a market capitalisation of US$257 billion currently, according to Bloomberg data. E-commerce rival PDD Holdings is second with a market value of US$125.7 billion, followed by online game operator NetEase at US$64 billion.
The Nasdaq Golden Dragon China Index, which tracks 68 US-listed Chinese companies with a total market value of US$239.2 billion, has tumbled 15 per cent this month, as the Trump administration’s so-called reciprocal tariffs sent global financial markets into a tailspin. The S&P 500 Index has dropped 4.4 per cent in the period and the Hang Seng Index has retreated 9.5 per cent.
The underperformance highlights the renewed regulatory risk for US-listed Chinese companies, most of which trade in the form of ADRs, which are surrogate securities that make offerings in the US easier....
....MUCH MORE
That $2.5 trillion "cost" figure is a mischaracterization, it's not a cost and frankly the shares/share equivalents would probably command a higher valuation in Hong Kong.
Alhambra: On China's Empty Treasury 'Nuke' Threats
Being fans of the low-IQ approach to markets we've looked at various options the U.S. government and the Federal Reserve could employ in the event China wants to dump their treasuries. Here's one version from September 2018:
New York Fed: "Do You Know How Your Treasury Trades Are Cleared and Settled?"
My first thought was "this is a (very) subtle reminder to China that should they decide to dump U.S. Treasuries the clearing and settling of the trade is really, really important."And here, with a more reasoned argument is Alhambra Investments....
Delaying or refusing transfer and settlement is sometimes argued as an action the U.S. government could take if China raises the stakes in the trade dispute.The downside is such a move would shock other players in the govvy markets, perhaps to the point they would reconsider their participation.
So, the Fed probably isn't warning, subtly or otherwise.
Besides, if China wanted to dump their holdings, the ultimate end-game action for the U.S. is to have the Federal Reserve go bid for a trillion or so and ask the Chinese "What else ya got?"
On to Liberty Street Economics, not coincidentally housed in the same 33 Liberty Street, NYC NY building as the Fed's open market operations desk....
