Restricting US capital flows into China could impact global markets, analysts warn
- Proposals to restrict US capital flows into China amid an ongoing trade war could impact Chinese firms listed on global stock exchanges, analysts say
- White House discussions about limiting portfolio investments in China could signal ‘bigger moves’
Proposals to restrict United States capital flows to China could have wider ramifications on Chinese firms listed on global stock exchanges, analysts have warned, potentially roiling world financial markets amid concern the China-US trade war could turn into a full-blown capital war.
Sean Darby, chief global equity strategist at brokerage Jefferies, said on Monday that the proposals were “far more draconian than the sanctions imposed on Russia” following its annexation of Crimea, and would “ultimately undermine the US capital markets”. In 2014, the US imposed sanctions on Russia by targeting listed companies, entities, exports and individuals close to the government.
Darby said that the potential economic sanctions on Chinese companies might lead to the closing of the American depository receipt (ADR) market, where instruments representing a share in a foreign stock can be traded. The ADR market capitalisation is more than US$860 billion and Chinese firms make up 90 per cent of the market cap of all outstanding ADRs, according to the report by Jefferies.
If the US takes action then I don’t think it would be limited to ADRs listed in the US, but would apply to Chinese stocks listed anywhere