Chinese investors are selling a record amount of US stocks and bonds, and the withdrawal of funds will continue
Chinese investors sold a record amount of US stocks and bonds in May, with total sales reaching $79.7 billion, more than half of which were US Treasury bonds. China's holdings of US Treasury bonds and bonds decreased by $440 billion. Investment strategists suggest that Chinese investors may be selling US securities to reduce risk and diversify their investments from US assets. A weaker US dollar may make local securities investments more attractive
Chinese investors sold a record amount of US stocks and bonds in May.
The latest data released by the US Treasury on Thursday shows that Chinese funds net sold $42.6 billion worth of long-term securities, including US Treasuries, agency bonds, corporate bonds, and stocks. The total sales for the first five months of this year reached $79.7 billion, setting a new record for January to May.
More than half of the sales were US Treasuries, followed by agency bonds and stocks. On April 25, the yield on the benchmark 10-year US Treasury note rose to its highest level since November last year.
China is one of the largest foreign holders of US Treasuries, and bond investors and geopolitical strategists are closely monitoring changes in China's holdings of US debt.
Billy Leung, an investment strategist at Global X Management Co. in Sydney, said that due to the uncertainty of the US presidential election, Chinese investors may sell US securities to reduce risk. He said, "There is also a possibility of reducing US dollar holdings due to political influence."
Wei Liang Chang, a macro strategist at DBS Bank, said, "Given the overvaluation of the US dollar, relatively expensive US stocks compared to Chinese stocks, and increased liquidity demand due to deleveraging, Chinese investors have sufficient reasons to diversify their investments from US assets. Based on economic fundamentals and political uncertainty surrounding the US election, the trend of capital withdrawal may continue."
Since the end of 2017, China's holdings of US Treasuries and bonds have decreased by $440 billion. During this period, the balance of securities held in Belgium, widely seen as the location of Asian custodial accounts, increased by $159 billion. China's holdings of US stocks, agency bonds, and other debts have also increased, indicating that China may have shifted US dollar assets rather than reduced them.
However, Ken Wong, an Asian equity portfolio specialist at Eastspring Investments Hong Kong Ltd., stated that the prospect of Fed easing and the resulting weakness in the US dollar may hinder Chinese investors from holding too many US dollar assets. He said that a weaker US dollar could make local securities investments "more attractive"