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.
“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.
