Chinese See Risk In US Stocks, Selling Off

Chinese See Risk In US Stocks, Selling Off

Chinese See Risk In US Stocks, Selling Off


For the past year, Chinese selling of US Treasuries has irritated investors and served as a gauge of the health of the world’s 2nd-largest economy.

The People’s Bank of China (PBOC), owner of the world’s biggest forex reserves, burnt through 20% of its war chest since Y 2014, dumping about $250-B of US government debt and using the funds to support the RMB Yuan and stem capital outflows.

While China’s sales of Treasuries slowed, its holdings of US stocks are now showing steep declines.

The nation’s holdings of American stocks sank about $126-B, or 38%, from the end of July 2015 through March 2016, to $201-B, US Treasury Department data show. That outpaces selling by market participants globally in that frame, total foreign ownership fell 9%.

Meanwhile, China’s US government-bond stockpile was relatively stable, dropping roughly $26-B, or just 2%.

The liquidation of shares suggests the PBOC was still under pressure to raise USDs and smooth the RMB Yuan’s depreciation even though US Treasuries selling abated, including through suspected custodial accounts in Belgium.

The equities reduction should alert investors that while China’s $1.4-T holding of Treasuries dwarfs its other foreign assets, it has accumulated enough US stocks to influence global markets.

Selling some of its equities is a reasonable way of raising the cash needed to finance the big draw-down in reserves.

The PBOC’s press office directed questions to the State Administration of Foreign Exchange, the arm of the central bank that manages the nation’s reserves.

Officials at SAFE didn’t respond to a request for comment.

Given that China’s private holdings of stocks abroad are smaller than the nation’s US  holdings as reflected in the Treasury’s count, one can reasonably infer that SAFE, whose reserve assets are not included separately in the net international investment position, holds many of the equities.

Switching to selling stocks allows the PBOC to retain safer, more liquid assets such as Treasuries that it can unload easily in times of uncertainty. Two rounds of declines in the RMB Yuan in the last 10 months triggered  market volatility worldwide and led investors to monitor China’s reserves as a measure of how much of its war chest the country was burning through to combat capital flight.

Selling equities may prove to be a savvy move in here, considering that the S&P 500 Index has gone 13 months without a new closing high and the pattern is a Bearish rounding top.

China more thatn 2X’d its holdings of US stocks during the Bull Market that began in on 9 March 2009, and the central bank would not be alone among government-affiliated sellers of investments abroad.

Sovereign funds from Qatar to the United Arab Emirates (UAE) and Russia have been liquidating assets since Crude Oil began its dive in June of Y 2014.

Thursday, US major stock market indexes finished at: DJIA +93.62 at 17733.79, NAS Comp +9.98 at 4844.91, S&P 500 +6.54 at 2078.04

Volume: Trade was light again Wednesday with about 854-M/shares exchanged on the NYSE

  • NAS Comp -3.3% YTD
  • DJIA +1.8% YTD
  • S&P 500 +1.7% YTD
  • Russell 2000 +0.9% YTD
HeffX-LTN Analysis for DIA:  Overall Short Intermediate Long
Neutral (0.12) Neutral (-0.04) Neutral (0.02) Bullish (0.38)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (0.11) Neutral (0.05) Neutral (-0.02) Bullish (0.29)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (0.01) Neutral (0.09) Neutral (-0.02) Neutral (-0.03)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Neutral (-0.18) Bearish (-0.31) Neutral (-0.01) Neutral (-0.21)

Stay tuned


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