SocGen says this is the 'worst-case scenario' of U.S. clampdown on capital flows to China

[Roland99]

SocGen says this is the ‘worst-case scenario’ of U.S. clampdown on capital flows to China
Published: Oct 8, 2019 2:17 p.m. ET
China’s onshore stock market is up around 27% this year

https://www.marketwatch.com/story/socgen-says-this-is-the-worst-case-scenario-of-us-clampdown-on-capital-flows-to-china-2019-10-08

The latest concern is talk of capping the flow of U.S. capital into Chinese companies which comes at a precarious time for investors who are banking on the success of trade negotiations this week in Washington D.C.

Société Générale analysts say continued discussions of measures to limit U.S. investments in China could upend the impressive performance of its onshore stock-market this year.

“Broadly speaking, we can define three stages in the rising economic tensions between the two countries,” Société Générale argued in a note Tuesday. “The first stage started with the tariffs dispute and is ongoing. The second stage extends the conflict to China investment to the US (CFIUS) and export controls (through the Export Control Act and the Entity List). The third stage might involve restrictions on US capital funding Chinese firms. It has not started but that is a risk that we have advised to hedge,” they said.

It’s the third step that represents the “worst-case scenario” for Chinese equities, said the Société Générale analysts, adding that such measures could include preventing U.S.-based stock index providers from putting Chinese stocks in benchmarks pegged to trillions of dollars of assets.

[Roland99]

1. And the DJIA swooned after this...closed down 1.2%

[SWBTATTReg]

2. Another component to this whole mess caused solely by rump is that the Chinese also buy...

billions of dollars worth of bonds too (those that the treasury dept. uses to finance the deficit). What happens when the Chinese stop buying these bonds? Who else is going to buy them (as massively as they did?).