U.S. May Order Funds to Dump Chinese Stocks, Activist Webb Says

(Bloomberg) -- The next step of the trade war could see Washington order American funds to dump Chinese stocks.

That’s according to David Webb, an activist investor in Hong Kong, who cautions that the U.S. could use more than tariffs if its trade war with China escalates. President Donald Trump may be able to use the Office of Foreign Assets Control -- the enforcement agency of the U.S. Treasury Department that issues and polices sanctions-- to “order a divestment of all U.S. persons in Chinese stocks” similar to the sanctions imposed on Russian aluminum producer United Co. Rusal last year, he said in a Bloomberg TV interview Monday.

“When the potential for tariffs has been exhausted if not before that, the US might pivot to some of the other powers that the president has through the Treasury and the Office of Foreign Assets Control,” he said. “The capital war could begin and at that point it could get quite nasty.”

Webb said investors should avoid holding stock in Chinese state-owned enterprises and said he was focused on shares that “have a strong Hong Kong element” or are mainly in the private sector.

The Trump administration removed financial restrictions on Russian tycoon Oleg Deripaska’s Rusal in January. The of the aluminum producer dropped by more than half from $9.2 billion after the sanctions were imposed.

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