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In a significant financial maneuver, Chinese investors recently divested a staggering $21.2 billion in US equities and Treasury bonds, according to the US Treasury’s latest report. This move marks the largest sell-off of US assets by Chinese investors in four years, reflecting a complex interplay of economic and geopolitical factors.
One of the most remarkable aspects of this financial activity was the offloading of a record-breaking $5.1 billion worth of US stocks within a single month. This massive divestiture comes in the wake of the onshore yuan weakening against the US dollar, reaching its lowest point since November, in the month of August.
The majority of the $21.2 billion in sales were concentrated in US Treasury bonds and stocks. Chinese funds also made substantial reductions in their holdings of agency debt, further emphasizing the scale of this transaction. The magnitude of the asset sale, particularly the $5.1 billion in US stock sales, is raising speculation on Wall Street.
Some financial experts theorize that Beijing may be employing this strategy to bolster its weakening currency. This hypothesis suggests that the sale of US bonds provides China with a reserve of dollars that can be used to intervene in currency markets, stabilizing the yuan’s value.
This strategic financial move coincides with a challenging economic landscape in China. The nation’s economy has struggled to rebound as anticipated from the COVID-19 pandemic. Beijing faces multiple economic challenges, including an uncertain property market, a weakening currency, declining trade, and sluggish growth.
On the other side of the equation, the US bond market has witnessed a notable sell-off by investors worldwide in recent weeks. The US 10-year Treasury yield has climbed to around 5%, reaching its highest level since 2007. According to strategists at Barclays, this upward trajectory in bond yields is expected to persist unless a significant financial shock or a recession occurs.
Barclays’ strategists argued that the conditions for a bond market rally remain challenging. They noted that while economic data indicates resilience in the US economy, the consensus among experts anticipates a sharp slowdown in the coming quarters. This raises questions about whether the consensus may have been overly confident in assessing monetary policy as too tight, with the possibility of continued upside surprises on the horizon.
