With US-China trade tensions deepening, analysts at Bank of America have war-gamed some potential implications for financial markets.

“What if China and the US were to decouple financially,” a group led by David Cui, head of China equity strategy with the American bank, asked itself in a June 4 note to clients. It’s “not our base case but an emerging risk worth monitoring,” they wrote.

Among the potential implications of any moves to establish a financial iron curtain between the world’s two largest economies, according to Bank of America:

• Chinese American Depositary Receipts (ADRs) delisting amid increasing scrutiny from US politicians.
• American fund managers coming under pressure to exit from Chinese stocks. Biotechnology, construction, oil and gas, telecoms, media and tech companies “may face higher risk of being subject to adverse shareholder actions potentially being perceived as a national security threat, violating human rights, or breaching American laws.”
• Chinese IPOs could shift to Hong Kong and China, hurting “new economy” enterprises because the “US capital market is much deeper.” In the short term, “a sharp increase of big-sized IPOs may put liquidity pressure on the rest of the markets” in China.
• China could sell some of its US investments, including Treasuries and stocks.
• The two countries engage in a currency war as China promotes global use of the yuan, aiming to erode the “strategic advantage” America has with the dollar’s role in the global financial system. That dominance has given extra oomph to US sanctions against Russia, Iran and Huawei Technologies, Bank of America noted.