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Should You Start To Worry? China Initiates 'Fire Sale' Of U.S. Equities

Should You Start To Worry? China Initiates 'Fire Sale' Of U.S. Equities

China's central government has been selling off its U.S. Treasury holdings since 2014 and using the proceeds to support its currency, the yuan, and stem capital outflows.

According to a report by Bloomberg, China has sold off roughly one quarter of one million dollars' worth of U.S. government debt over the past two years. While the pace of selling Treasuries has slowed down as of late, the government ramped up its selling of U.S. equities.

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China's government held $201 billion worth of U.S. stock as of July 2015, but Bloomberg's report now pegs the government's holding of U.S. equities at $126 billion, representing a 38 percent decline. Over the same time period, the Chinese government sold just 2 percent of its total U.S. government bonds, or $26 billion worth of debt.

Bloomberg suggested that China's central bank is under pressure to increase its U.S. dollar cash holdings and "smooth" the yuan's depreciation.

The report also cautioned that China holds $1.4 trillion worth of Treasuries — an amount that dwarfs its equity holdings. Nevertheless, its equity position is sufficiently large enough to "influence global markets." By comparison, the largest U.S. mutual fund, the Vanguard Total Stock Market ETF (NYSE: VTI), holds around $375 billion worth of stock.

"The Chinese, or other people for that matter, are taking the view that sitting in U.S. equities is presumably quite risky, and I'm not surprised they're shifting," Fredrik Nerbrand, global head of asset allocation at HSBC Bank Plc told Bloomberg. "This seems like more of a generation of cash more than anything else, and probably a de-risking of their portfolio."


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