The US Department of Defense on Monday added Tencent and CATL to its Chinese Military Companies (Section 1260H) list. With sizeable US investor exposure to Chinese equities totaling hundreds of billions of dollars, the potential for forced divestment looms under a Trump 2.0 administration.
Goldman analysts Si Fu and Kinger Lau said that Tencent and CATL being added to the Section 1260H list does not automatically impose trading restrictions on those securities. However, prohibitions on purchasing those companies would only be made possible by placing those entities on the Office of Foreign Assets Control's administered Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) list.
"In a scenario where Tencent and CATL were added to OFAC's NS-CMIC list, we estimate US$54bn of active and US$19bn of passive selling from US and global passive mandates for Tencent, and US$5bn and US$1bn for CATL, equivalent to about 210 and 20 days of selling respectively assuming the liquidation flows do not exceed 1/3 of ADT," the analysts wrote in a note to clients on Wednesday.
