In a note on Wednesday, the foreign brokerage stated that around 7% of the market capitalisation of Chinese companies listed in the US (ADRs), is held by US institutions and those may not be able to trade in Hong Kong.
US institutional investors currently own Chinese ADRs worth $250 billion, while their exposure to Hong Kong equities stands at $522 million.
“This means that such investors may not be able to go to the Asian financial hub to buy shares if companies like Alibaba face an involuntary delisting from the US,” Goldman said.
Concerns have begun to rise as the impasse between the US and China continues over a possible trade deal. While US President Donald Trump wants China to reach out to him for talks to begin, China has laid down conditions before they sit on the negotiating table, including respect from the US, and appointing a point person for talks.
Speculations of American stock exchanges delisting Chinese firms have become part of the worst outcomes for global banks on a potential financial divorce between the two major economies. The delisting of Chinese firms on the US exchanges had become an issue during Trump’s first term as well. The speculation got further air after Treasury Secretary Scott Bessent said that “all options are on the table”, when it comes to talks with China.
“The extreme levels of uncertainty in the global trading system have led to extraordinary volatility in the global capital markets, and concerns about global recession and decoupling risks between the two largest economies globally in other strategic cohorts,” Goldman Sachs wrote, adding that in case of forced delisting, ADRs and the MSCI China index could see a valuation drawdown of 9% and 4% respectively from the current price.
Meanwhile, in the same extreme scenario, Chinese investors might need to unload their US financial assets, which could amount to US$1.7 trillion, they wrote, adding that around US$370 billion of which would be in equities and US$1.3 trillion in bonds.
Earlier, JPMorgan estimated that ADR delistings could lead to removal from global indexes, resulting in aggregate passive outflows of around $11 billion.
(With Inputs From Agencies.)
