China Dumps 38% of its U.S. Equity Holdings

According to the U.S. Treasury, China has been selling U.S. equities, ad hoc, to the tune of 38% or $126 billion worth from July of 2015 until March of 2016.

My first reaction is China needed to raise dollars in order to deal with the money that has been fleeing from within its borders. But maybe it’s more than that? Maybe, just maybe, THEY ARE IN POSSESSION OF A FUCKING CRYSTAL BALL.

Or, perhaps the CFR informed them that stocks were to be liquidated and to board the ark. It’s noteworthy that their $1.4 trill treasury holdings only shrunk by 2% over the same time period.

“Selling some of its equities is a reasonable way of raising the cash needed to finance the big drawdown in reserves,” said Setser, a former deputy assistant secretary for international economic analysis at the Treasury.

Switching to selling stocks allows the PBOC to retain safer, more liquid assets such as Treasuries that it can unload easily in times of turmoil. Two rounds of declines in the yuan in the last 10 months spurred market volatility worldwide and led investors to monitor China’s reserves as a measure of how much of its war chest the country was burning through to combat capital flight.

Dumping equities may prove to be a savvy move, considering that the S&P 500 Index has gone 13 months without a new high on a closing basis. China, which more than doubled its holdings of U.S. stocks during the bull market that began in 2009, wouldn’t be alone among government-affiliated sellers of investments abroad. Sovereign funds from Qatar to the United Arab Emirates and Russia have been liquidating assets since crude began tumbling in 2014.

“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,” said Fredrik Nerbrand, global head of asset allocation at HSBC Bank Plc in London. “This seems like more of a generation of cash more than anything else, and probably a de-risking of their portfolio.”

Bear in mind, the Chinese still own about $200 billion in stocks. Vanguard, the largest owner of U.S. stocks in the world, has a little upwards of $370 billion invested. I’d consider one of the largest owners of U.S. stocks, liquidating to the tune of 38%, a significant event.