Goldman sees buying opportunity in US$60 billion in bonds of China firms on US list

Issuers of the affected bonds include some of China’s largest private and state-owned companies

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A Tencent sign at a conference in Shanghai. Photo: Reuters

Published: 5:06pm, 8 Jan 2025Updated: 7:47pm, 8 Jan 2025

The US’s updated list of Chinese firms with military links covers a combined US$60 billion in offshore debt issued by the affected companies and any price declines could present investors with a buying opportunity, Goldman Sachs said.

Issuers of the affected bonds – most of which have investment grades – include some of China’s largest private and state-owned companies, like Tencent Holdings, Contemporary Amperex Technology (CATL) and CNOOC, the US investment bank said in a report on Wednesday. In early 2021, the total offshore debt of firms included on the US list was US$75.3 billion.

Historically, Goldman analysts Kenneth Ho and Sandra Yeung wrote, inclusion on the military links list has only had a short-term impact on bond prices.

In January 2021, then-US president Donald Trump issued an executive order that put 35 Chinese companies with links to the army under sanctions, including chipmaker Semiconductor Manufacturing International Corp, Huawei Technologies and surveillance camera maker Hangzhou Hikvision Digital Technology. The executive order prevented US investment in these companies.

Bonds of the affected companies sold off in the fourth quarter of 2020, culminating in a widening yield spread against the Asia US dollar bond index by around 60 basis points, Goldman said. The sell-off continued until the middle of 2021, when the yield gap disappeared and the affected bonds began to move in tandem with other investment-grade Chinese debt instruments, it said.

“The impact from the US executive order in 2021 was relatively short-lived and we expect any negative impact from recent developments to be temporary,” Goldman said.