Stock wars: A key US/China trade tension to watch

Will Alibaba and Tencent face a US ban?

As President Trump prepares to leave office, albeit in typical controversial fashion, one of his last actions upon leaving office has been issuing a ban on Americans investing in 35 companies considered to have close ties with China’s military. The recent emerging market rally has been able to absorb that news. However, the companies on the banned list may be about to be increase.

Reuters report that Washington sources have Trump considering adding Alibaba and Tencent to that list of banned firms. That could be significant.

Alibaba and Tencent to face ban

The companies Alibaba and Tencent have a combined value of around $1.3 trillion combined. They are the number two and the number three largest EM stocks in the world and held by almost every major U.S investment fund. If they are banned, and $1 trillion dollars is unwound via an Alibaba and/or Tencent ban, then that is a significant move that could result in some risk off trading. According to the investment bank UBS they think that around one third of Alibaba’s $616 billion market is held by US investors and that 12% of Tencent’s $35 billion value is held by them. These firms combined make up around 11% of MSCI’s $7 trillion emerging market index and Chinese firms make up around 40% of that index which is up from around 17% a decade ago.

This is one area to watch as a ban could push some risk off selling. So watch out for these headlines as key a risk to stay on top of. Remember that if we saw strong risk off selling we would expect AUDJPY selling as an initial reaction.

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