Goldman Sachs Warns $2.5 Trillion Sell-Off In The Extreme Event Of US-China Decoupling As Scott Bessent Says 'Everything Is On The Table'

The possibility of a U.S.-China decoupling could lead to a massive $2.5 trillion sell-off, according to a recent analysis by Goldman Sachs.

What Happened: The report suggests that in an extreme scenario, investors from both countries might be forced to divest their holdings of equities and debt instruments. If a decoupling takes place, U.S. investors may be forced to offload nearly $800 billion worth of Chinese stocks listed on American exchanges. On the flip side, China could divest its holdings of U.S. Treasuries and equities, which currently total around $1.3 trillion and $370 billion, respectively, as per a report by the South China Morning Post.

Amid the risk of U.S.-China decoupling due to the trade war, the possibility of delisting Chinese companies from US stock exchanges is now being explored. This potential move could affect nearly 300 firms, including some of China’s biggest tech giants, stated Goldman Sachs.

The sell-off was driven by the assumption that U.S. investors would face restrictions from US regulations on such investments, as per Goldman.

The investment banking firm anticipates a fresh wave of U.S.-listed Chinese companies to relist in Hong Kong. "We believe potential Hong Kong listing for these companies could probably catalyse a re-rating given the flexibility for U.S. investors to convert their ADRs to Hong Kong shares" event of a sudden liquidity crisis, says Goldman Sachs.

James Wang, head of China strategy at UBS Investment Bank Research, noted that the delisting of Chinese companies from the U.S. could have far-reaching consequences, such as diminished access to the deeper U.S. capital markets, potentially lower valuation multiples due to a shrinking investor base, and reduced liquidity.

Why It Matters: The potential decoupling and subsequent delisting of Chinese companies from U.S. exchanges is a growing concern, especially after Treasury Secretary Scott Bessent stated that the delisting of U.S.-listed Chinese companies was once again being considered. During an interview with Fox Business, Bessent stated, "Everything is on the table," when asked about possible actions against Chinese companies.

According to the U.S.-China Economic and Security Review Commission, as of March 7, a total of 286 mainland Chinese companies were listed on the New York Stock Exchange, NYSE American, and Nasdaq, with a combined market capitalization of $1.1 trillion.

The Hang Seng Tech Index, which lost over $350 billion in market value since March of that year, is under the shadow of geopolitical tensions and potential U.S. sanctions. These measures, including restrictions on financial holdings or additional sanctions, represent a “serious risk,” as stated by Bush Chu, an investment manager at Aberdeen Investments.

The ADR of Alibaba Group Holding Ltd BABA climbed 3.4% to close at $107.73 on Friday, while that of PDD Holdings Inc. PDD rose 2.43% to close at $90.50. Meanwhile, ADR of NetEase, Inc. NTES rose 5.36% to close at $99.35, as per BenzingaPro.