© Reuters. FILE PHOTO: Chinese and American flags fly outside an American company building in Beijing
LONDON (Reuters) – US restrictions on investors holding the securities of various Chinese companies could affect up to $ 60 billion in bonds and cause strong outflows through forced sales, JPMorgan (NYSE 🙂 wrote in a note to clients. Donald Trump‘s White House issued an executive order in November prohibiting Americans from investing in companies that the US Department of Defense says have ties to the Chinese military, a claim many of the companies deny and that the China’s government says it lacks evidence. While several of the 44 companies listed by the Department of Defense have been delisted from various equity indices or have seen their securities withdrawn from the New York Stock Exchange, the fixed income markets are still dealing with the impact, already that many bonds are issued through subsidiaries rather than major companies. In a note to clients written earlier in the week and ahead of the release of a full list of subsidiaries that are 50% or more owned by Communist Chinese military companies, JPMorgan estimated that about “$ 55-60 billion in bonds would be affected if / when the Treasury acts “. Democratic President Joe Biden, who took office Wednesday, has not spelled out any plans for his predecessor Donald Trump’s executive order mandating divestment, but he could easily revoke it. Much of the focus was on debt issued by China National Chemical Corporation (ChemChina), of the affected issues, most owned by US-based investors or those with a US presence, according to JPMorgan . ChemChina had already suffered a $ 1 billion forced sale in the wake of the executive order and could see another 1.3 billion outflows from affected investors, JPMorgan calculated. As for the China National Offshore Oil Corp (CNOOC (NYSE :)) of $ 19.5 billion of US dollar-denominated debt, more than $ 3.2 billion was held by funds domiciled in the United States and $ 3.5 billion could be affected if the scope were extended to all asset managers with a presence in the United States, JPMorgan found. “However, we believe that investors who can buy the bonds should use that sale round, which we believe would be the last round, if at all, to take the opposite point of view and buy some of these affected bonds.” JPMorgan said. said. For the companies themselves, removing US investors from the equation would only have a limited impact, JPMorgan added. “Its reliance on offshore investors for funding needs is low and offshore USD bonds form a very small part of its capital structure,” wrote analysts at JPMorgan.