Navigating Heightened U.S.- China Tensions in Asia Credit

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Executive Order banning trading in designated Chinese entities increases uncertainty on the horizon and reaffirms importance of diversification.

Once characterized by mutual cooperation, the U.S.-China relationship has undergone a significant shift since the onset of the trade war initiated by President Donald Trump in 2018. A preliminary deal signed in January 2020 has done little to reduce tensions between the world’s two largest economies either, with negative headlines spreading to other areas like technology, immigration and geopolitics.1 On November 12, President Trump signed an Executive Order that represents a meaningful escalation in the ongoing tensions. The decree stipulates that starting January 11, trading in publicly traded securities of Chinese companies designated as “Communist Chinese military companies” will be banned, while existing holdings can be divested up until November 11.2 From a fixed income perspective, the combined value of outstanding U.S. dollar- and euro-denominated bonds to be directly or indirectly impacted to date is about US$ 90 billion, in our view.